Valuation

The question

What is the company worth, and what is its IP worth? The purpose differs each time. A funding round needs a pre-money value, which sets how much the existing shareholders are diluted. A contribution in kind of IP or of a business into a company needs a value for the shares issued in return. Shareholders who buy each other out need a price. A sale or merger needs a range. IP moved within a group needs a price that an unrelated party would also have agreed, which is the arm's length principle behind transfer pricing. A licence needs a royalty rate. An IP-box tax regime needs a clear view of which income comes from which right.

No rule of law fixes the value. It is an estimate made for a purpose, by a suitable method, and for a transfer within a group it must be defensible to the tax authority.

Our approach

We combine corporate, IP and tax advice, and that is our angle. We do not replace the valuer. Company law is largely national, but a contribution in kind usually needs an independent report on its value. For public limited companies the EU Company Law Directive requires an expert report, with some exceptions; private companies follow national law, which often asks for an independent expert as well. The expert makes that statutory report. For that report and any valuation, we prepare the legal and IP input, and we structure the transaction around the result.

The valuer uses one or more standard methods. The income approach values the future earnings of the business or the right, through discounted cash flows or, for IP, the relief-from-royalty method, which prices the asset by the royalties its owner is spared by owning it. The market approach looks at comparable transactions or licences. The cost approach looks at what it would cost to recreate the asset. Each needs legal inputs, and that is where the value is won or lost. See how to value an IP portfolio.

We document and assess those inputs:

• Ownership and chain of title. Assignments from founders, employees and contractors, and who is recorded as owner.
• Scope and strength. What the claims of a patent or the registration of a trademark actually cover.
• Territory and remaining term. Where and how long the right applies.
• Enforceability and use. Whether a trademark is in use and the right can be defended.
• Freedom to operate. Whether the owner can use the right without infringing others, see freedom-to-operate analysis.
• Encumbrances. Licences, pledges and co-ownership.

We build the register in our portfolio platform, which lists each right with its status, jurisdictions and upcoming deadlines. Where the strength of a patent or a third-party patent matters, patent analysis provides claim charts that an attorney reviews. The documents go to the valuer, auditor and other side in a data room.

The purpose decides what we add. In a round, we align the valuation with the term sheet, the dilution and the option pool, as explained in funding rounds and term sheets; see also funding. In a sale or merger, the same material feeds M&A and due diligence. For IP that moves within a group, we document the legal position and the tax reasoning for the arm's length price. For licences, we link the royalty to the rights actually licensed and to the terms of the licensing agreement. For an IP-box regime, we show which income comes from which qualifying right, see the innovation income deduction and grants and tax incentives for IP.

A lawyer assesses every right and conclusion before it reaches you. The financial modelling is the valuer's.

What you get

• A register of the rights concerned, with status, territory, remaining term and costs.
• A legal assessment of ownership, scope, enforceability and freedom to operate, with a note on how each point may affect the value.
• Defects such as missing assignments cured before anyone relies on the rights.
• Legal and IP input the valuer and registered auditor can use.
• Transaction documents that fit the result: investment terms, contribution deed, share transfer or licence.
• A tax view on the structure, including transfer pricing and, where relevant, an IP-box regime.

Take a software company in Ghent that wants to contribute a patent family and its platform code into a new group company. We list the rights and find that one inventor left without a recorded assignment. We have it signed, check the remaining term and the countries of validation, and prepare the file for the auditor and the valuer. The value rests on rights the company demonstrably owns, and the same file supports the transfer price and a later innovation income deduction claim.

Next step

Tell us what the valuation is for, which rights or companies are involved and who will carry it out. We will tell you which legal and IP input is needed.

Schedule a meeting or contact us.