Friday, July 23, 2010

Sources of growth - Part 4

(This is part 4 of a 4-part series. If you want to view the series from the start, click here.)

In previous parts, I have described 2 sources of growth from IP commercialisation activity, namely managing and growing existing licensees and recruiting new licensees.

To round out the discussion, there is another source that is often underestimated.

It is often assumed that an IP portfolio has a fixed value. One unheralded source of growth is the growth due to improving the value of the portfolio.

Among the various methods of valuing portfolios, several are variations on present worth of future licensing cash flows.

If the activities of managing existing licensees and developing new licensees increase the future royalty volumes, the value of the portfolio also increases. Simply put – if there is an unexpected increase of 50% in royalty streams, that in itself will allow an upwards revaluation of the portfolio by a similar percentage.

And it does not even stop there ...

The value of the portfolio is not simply the stream of royalties. If quality and efficiency improve, there is a further boost to valuation.

Success breeds success

A well-run licensing operation will in itself add to the valuation. As the process of managing and recruiting licensees becomes slicker, subsequent victories will become easier to achieve. If it is not a perpetual-motion machine, it certainly is an efficient machine.

Learning curve effects mean that you can improve the quality of agreements to optimise returns. The experience may even give the opportunity to go back and improve on aspects of existing agreements through renegotiation.

The cumulative effect of the sources of growth mentioned in this series is illustrated in the chart below.

(This is part 4 of a 4-part series. If you want to view the series from the start, click here.)

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