IP as collateral: Loan against our IP used to finance acquisition (vertical - downstream)

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by a searcher from SDA Bocconi - School of Management
in Fort Lauderdale, FL, USA

7mos ago

IP as collateral: Loan against our IP used to finance acquisition (vertical - downstream)

Does anyone have experience with specialized debt funds Lending against strong IP (patents, trademark with proven sales records, trade secrets, "capitalized intangible assets") What do typical LTVs or financing terms look like? We have the IP already and we are IP heavy (hardware), proven demand. As soon as this is 100% legally tied up. We'll need distribution - fast. We are considering *acquiring* or merging into the distribution, (something boring) - just to help us penetrate into the market and going. (I know there are many ways to structure this) We'd like to use our IP as collateral for a loan - Use the proceeds towards the down payment of acquiring the downstream company with the distribution, customers lists, systems and "goodwill" we need (this is probably a rare case where "goodwill" actually has value lol) Does this make sense? Obviously the other fast/safest way would be for us to work out a JV with a Big Company (like Alienware/Dell, T.I., et al) We will see. My team gets easily distracted with "shiny object syndrome" and I sometimes feel like I am trying to "heard cats" I keep the focus on where we are today but I am planningredactedmoves ahead...

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reply by a searcher 7mos ago
from SDA Bocconi in Fort Lauderdale, FL, USA

Thank you very much. I'm planning to read some books on IP valuation methods. (Its also interesting to me). Valuation is the one factor (I guess NPV (highly subjective and/or illiquid) Consider valuing an obscure Piece of Art. (Makes sense now why they call IP "art" - prior art search, etc) "eye of the beholder" The other unique feature is the legal mechanism used to remedy a default - Lender holds a very, very "Tight Leash" lol Consider a high leverage CMBS loan with a Springing Lockbox. Correct me if I am wrong, but but with IP, its even Higher than a UCC lien Lender typically takes actual title via assignment and its basically an Installment loan similar to Land Contract in real estate or Personal Auto Loan. I have heard of special lenders for example lending against other intangible "IP" such as: - Business Main Phone Number ... - Google Page - Email controls logins & passwords In case of a default they simlly take the login controls and if the borrower defaults they cut off the Main Phone Line -> Divert all the new Leads elsewhere ! Very effective. Monetize it immediately. The Debt may not be feasible right now. We may have to "skin this cat" differently -

reply by a professional 7mos ago
from Columbia University in Oakland, CA, USA

I see two common permutations of this in my debt practice. The first is pledging IP collateral as part of a broader secured credit facility (e.g., the venture debt example described before). The other is similar to a securitization in that the lender is underwriting the future cash flows generated by the IP and taking a pledge of both the IP rights and the associated contractual payment rights, sometimes on an off-balance/BK remote basis, with the loan being repaid out of receivables collected in the SPV. There are, separately, industry-specialized focused funds (we primarily focus on media) that will invest in or otherwise finance cash flowing rights. It's unfortunately hard to quote a "market" LTV considering how bespoke the valuations are, how different IP asset classes monetize, and the different valuation multiples that apply -- not to skate past what parties sometimes feel are subjective negotiations about valuation. For what it's worth, rights clearance issues and insurability of the IP can sometimes bubble up as second order points on these deals. Somewhat of a non-answer answer, I realize, but hope its helps some. Not legal advice, but a JV might make sense if it's on the table, since you may be able to sidestep the question of valuation and tie economics and rights to more objective criteria, like sales.