IP Valuation Techniques
This playbook describes the sequential steps for valuing intellectual property (IP) using different methodologies, such as the cost, income, and market approaches. It outlines the importance of these valuations in the context of business transactions.
Step 1: Cost Approach
Evaluate the asset's historical cost including the development and creation expenses. Adjust for inflation or technological obsolescence to arrive at the current replacement cost.
Step 2: Income Approach
Estimate the future income attributable to the IP asset. This involves projecting future cash flows and discounting them back to their present value using an appropriate discount rate.
Step 3: Market Approach
Identify comparable IP assets that have been sold or licensed in the market. Analyze and adjust the transactional data to reflect the characteristics of the asset being valued.
Step 4: Valuation Integration
Integrate the different valuation results from the cost, income, and market approaches to form a comprehensive value estimate for the IP asset.
Step 5: Contextual Analysis
Consider the context of the IP valuation such as the reason for the valuation, the relevant industry, and the market conditions.
General Notes
Expert Consultation
Consider consulting with a valuation expert particularly for complex assets or when dealing with significant amounts of money.
Legal Scrutiny
Ensure to comply with all legal and regulatory requirements associated with intellectual property and its valuation.
Purpose of Valuation
The purpose of the IP valuation, whether for a business transaction, litigation, strategic planning etc., can significantly influence the approach and the outcome.