Facilitating IP-focused lending and insurance: how one company is strategising market transformation

Despite analysts having talked up the value of intangible assets – including brands – for years, there has long been a gulf between the worth recognised by IP specialists and companies being able to leverage this in the same way that they can physical assets. However, this situation is slowly improving, due in part to the efforts of organisations such as Ingott.

The UK-based IP identification and valuation platform was established in 2007 and initially focused on enabling companies to identify their assets, along with standardised methods of IP valuation. The platform can recognise more than 80 types of intangible asset, which it then pairs with easy-to-follow descriptions that enable companies to compile inventories of their intellectual property. Once this is in place, they can then identify the value of intellectual property in use (ie, what that particular intangible asset is contributing to the business at that point in time). As CEO Martin Brassell explains, “we have used that to support a number of lenders – general and specialist – with unsecured lending (unsecured in the sense that the collateral value of the intellectual property is not taken into consideration in the loan).”

However, the real financial payback comes when companies, lenders and insurers can confidently identify the insurable value of intellectual property and intangible assets. It puts insurers at ease when lending, as they can realise value from these assets should the business get into difficulty. While taking security over physical business assets is a well-established practice in finance, the intangibles that drive knowledge-based business models have traditionally proved hard to utilise in this way. This is where Inngot is now focusing.

“The turning point on the financial journey was when I co-wrote the Banking on IP report for the UK Intellectual Property Office in 2013,” Brassell recalls. “That really highlighted the difficulty that companies have in getting anyone to understand, and give value and financing for, all kinds of intellectual property and intangibles. That was the genesis of starting to focus on the tools and platform to try to tackle that specific issue.”

In July 2021 Inngot announced that it had successfully completed a £1 million debt and equity funding round to build and launch its latest systems, which home in on that issue only. The debt element of the fundraising is a £436,000 Innovation Continuity Loan from Innovate UK, the United Kingdom’s innovation agency, made available under a £210 million scheme to support the commercialisation of successful grant-funded projects post-covid-19. Both the original grant and the new loan are directed at introducing scalable, data-driven methods to assess the suitability of intellectual property and intangibles for use as loan collateral.

“The power of brands is increasing”

The challenge facing Ingott (and other companies forging ahead in this space) is twofold. The first task is to come up with an offering that gives lenders confidence that they have identified the recoverable value that resides in the assets in question. “It is not difficult to persuade a lender that intellectual property and other intangibles can have value,” Brassell argues. “Their question is how they can really harness and be confident about that value. They understand that IP value can be volatile so working through the mechanics of how you provide that value backstop is so important.”

The second task is to do this at scale, to ensure that lenders are not reinventing the wheel every time they assess intellectual property.

A standard approach has thus proved key. Brassell concurs that valuation approaches are nuanced and that the right method depends on both the purpose of the valuation and the data available. However, he maintains that this is not a reason to eschew a standardised set of approaches. “Otherwise you will never build the market because everything you look at starts to seem like a one off,” he points out. “You can’t allocate capital efficiently at scale on that basis. Our thesis is that we are trying to make valuation much more of a science that an art. If you preserve the notion that it is an art, you can’t ever build confidence in it.”

As to the types of asset that can be leveraged, brands are now taking centre stage. IP-backed lending, particularly in the United States, has historically focused on patents as collateral. “The culture around patents is stronger and there is a great deal more litigation, which means a more dynamic and transparent resale market,” he observes. However, there and elsewhere, attention is increasingly turning to brands, which can boast substantial recoverable value even if the business behind them fails.

As an example, Brassell points to Asos’ acquisition of the Topshop, Topman, Miss Selfridge and HIIT brands for £265 million this year. Alongside this figure, the company paid a more modest £65 million for current and future stock. “You can replace the stock over time but it is the brand that will have the recognition.”

Such transactions are sending a clear signal to the market that brands are valuable and can be a financial tool. “As we have seen in the transactions that have happened recently, in a strongly competitive landscape, in an environment where things are increasingly moving towards remote and online purchasing, in an age where you have to communicate things quickly and succinctly, the power of brands is increasing. The connection that we are trying to make is to say: ‘If all of that is true, then there is value to be leveraged. But you cannot expect to leverage that value by selling it.’ If it is any good, you cannot sell it, because the company needs it. So you have to find another way of doing it – and the obvious way is through either licensing or financing.”

Switching the mindset to value rather than cost

Asos is operating at the larger end of the market. However, while brand-backed financing certainly applies to big organisations, Ingott is eying the opportunity to provide a boost to those on their way up. “From a lender’s perspective, if you have just started trading, it is unlikely that your IP assets will be mature enough or your turnover sufficient to support debt,” Brassell points out. “So the optimum target is scale-up businesses. Those are the companies that are most likely to benefit from an early stage – what we are trying to do is bring forward the point at which a loan can take place.” For lenders, this provides a golden opportunity to partner with firms from the moment that they embark on their growth journey.

One hurdle is to ensure that businesses buy into the concept. “I think there is quite a lot of education to be done around the fact that intangible assets have recoverable, and are driving business, value. Many companies are quite sophisticated but if you look at the SME landscape, many have not thought about intangibles as an asset. When you say ‘intellectual property’, the mindset of some people switches straight to ‘legal’ and ‘cost’, rather than ‘asset’ and ‘value’.”

Get that education piece right and Brassell maintains that the result is a win-win for both lender and IP owner. “The way that I put it is, if the intellectual property that a company owns is any good, it is far too valuable to part with. Once you have a business and lender in that mindset, the intangible has the potential to be excellent collateral. And as a lender you want collateral to be important to the business because then it actively influences behaviour – if something is valuable to a company, it is the last thing that it will willingly default on.”

Before reaching out to firms, Inngot’s focus will be on the supply side of the equation and ensuring that lending and insurance capacity is in place. “We think that one day most lending will be done this way,” Brassell predicts. “It is inevitable because of the rise of knowledge assets. Approaches and systems have to be found to facilitate this. Our challenge to the market is: ‘Why not now?’ It is becoming possible, with the way that we can collate and triangulate data, to get to an acceptable degree of confidence about the recoverable value to be able to insure it. And that is the tipping point that the market has had to reach.”

Inngot’s mission is to make such practices the norm. “Success will be seeing all the largest lenders, whenever they are dealing with a company with intellectual property, taking a proper look at it in terms of establishing credit worthiness,” Brassell reflects. “Our aim is not to change accounting reporting standards. We are trying to provide the science and standards so that whenever intellectual property is present, it can be given proper consideration. Our goal is to enable companies to leverage the investment that they have made in their assets without having to sell them. And I’m pretty confident we can get there.”