11b valuation presentation v4i-intangible

Technology Valuation

2012

4 innovation

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Introducción VALORACIÓN DE TECNOLOGÍA

Proceso de Transferencia Tecnológica

La valoración y valorización son esenciales en el proceso de transferencia

Valoración-Assessment y Valorización-Valuation

Valoración y valorización son etapas consecutivas en el proceso de transferencia

IDEA Solución

tecnológica Prototipo

tecnológico Empaquetamiento

y Transferencia

Valoración (IP & Market Assessment)

Valorización (Valuation)

Riesgo

Criterios de Valoración

Tecnología

Fortaleza Propiedad Intelectual

Competidores y Tecnologías de la Competencia

Potencial Mercado Comercial

Tecnología

Descripción

Beneficios

Aplicaciones de la tecnología

Costos de la tecnología

Estado de desarrollo

Regulaciones nacionales y extranjeras

Propiedad Intelectual

Titularidad de la PI

Acuerdos previos

Viabilidad de protección

Patentes relacionadas

Estrategia de Protección

Competidores

Problemas que resuelve la tecnología, soluciones existentes

Tecnologías de la competencia

Competidores

Potencial de Mercado

Mercado potencial

Tamaño de mercado actual y proyectado

Mercado de interés

Requisitos del mercado

5 Factores de interés

Beneficios de la Valoración

Razones Fundamentales

Delinear estrategia de

protección de PI

Permite identificar nuevas aplicaciones

Reducir riesgos legales

Definir el modelo de negocio

Decidir el modelo de transferencia

Definir la estrategia de comercialización

INSUMO RELEVANTE VALORIZACIÓN

VALORIZACIÓN DE TECNOLOGÍA

Index

11 Technology Valuation

1. What is the right price: Value Vs. Price

2. Basic Methods of Valuation

1. Back Perspective

2. Around Perspective

3. Pieces Perspective

4. Down Perspective

5. Forward Perspective

6. Dice Perspective:

7. 7, 8 and 9. Auction, Common Sense and Equity

Perspective

3. Conclusions

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What is the right price: Value vs. Price

Value

An amount considered a suitable equivalent for something else.

Price

The sum of money or

goods asked or given for

something.


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Price vs. Value

Licensee’s Ceiling

Licensor’s Floor

Range of Negotiation


14

Valuation: a rational process

Without a valuation basis

With a valuation basis You negotiate the basis

You negotiate from emotion


15

When is Technology Valued?

By litigators, value established at a point in time.

Adversarial: the outcome is imposed judicially.

By deal makers, Value extracted over time. Prospectively

Retrospectively


16

Prospective Valuation: Financial Forecast

The calculation of royalty, depends on:

Technology Scope

Number and scope of patents

Know how

Patent age

Number of potential applications

Stage of technical development

Barriers to market entry

Exclusive or non exclusive rights


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Basic Methods of Valuation

The licensing perspective:

1. Back perspective Costs

2. Around perspective Industry standards, comparables

3. Pieces perspective Ranking/rating

4. Down perspective Rules of thumb

5. Forward perspective Discounted cash flow

6. Dice Perspective Monte Carlo

7. Others Perspective Auction

8. No farther Perspective Common sense

9. Market Perspective Equity


1. Back Perspective Methods

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Is cost to develop relevant? Development costs, patent costs?

NO! it is a poor method for pricing.

However it can be useful for:

Development costs as a factor in determining value

Modified replacement cost to calculate upfront


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Also named the Cost Approach

Theoretical Background:

Value is determined by the cost to replace or the cost to recreate the IP.

Costs include:

R&D, Materials, Equipment, Marketing, Advertising, Delayed Market

Entry.

Value of the IP:

Fair market value of total investment to replace or recreate the IP.

NOTE: A licensee will not pay more for the IP than the amount for which the IP

could be recreated.

However, by licensing IP from others the licensee avoids development

costs and minimizes risk.


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2. Around Perspective

Constitutes of looking at sources of comparable transaction data:

Internal Database

Published Surveys

Public Announcements

Word Of Mouth

Litigation

Required Disclosure


21

Royalty Rate Standards

Comments Royalty Product

1 % commodities, 2% processes 1 – 4 % Materials Processes

3 – 5 % Medical Device

5 – 15 % Software

Chip design 1 – 2 % Semiconductors

Composition of materials 8 – 10 % Pharmaceuticals

With clinical testing 12 – 20 %

New entity 4 – 5 % Diagnostics

New methods 2 – 4 %

Processes non exclusive 1 - 1.5 % Biotechnology

Processes exclusive 1 – 2 %

Adapted from Lita Nelsen, Director TLO of MIT


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Licensing Executives Society – AU NZ Royalty chart

Industry No. of

Licenses Min Max Avg. Median

Automotive 35 1.00% 15.00% 4.70% 4%

Chemicals 72 0.50% 25.00% 4.70% 3.60%

Computers 68 0.20% 15.00% 5.20% 4%

Consumer Goods 90 0.00% 17.00% 5.50% 5%

Electronics 132 0.50% 15.00% 4.30% 4%

Energy & Environment 86 0.50% 20.00% 5.00% 5%

Food 32 0.30% 7.00% 2.90% 2.80%

Healthcare Products 280 0.10% 77.00% 5.80% 4.80%

Internet 47 0.30% 40.00% 11.70% 7.50%

Machines/Tools 84 0.50% 25.00% 5.20% 4.50%

Media & Entertainment 19 2.00% 50.00% 10.60% 8%

Pharma & Biotech 328 0.10% 40.00% 7.00% 5.10%

Semiconductors 78 0.00% 30.00% 4.60% 3.20%

Software 119 0.00% 70.00% 10.50% 6.80%

Telecom 63 0.40% 25.00% 5.30% 4.70%


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Around Perspective Sources

Most valuable tool for determining industry standards is the use of

published agreements.

Published Data

• www.knowledgeexpress.com

• http://pharmalicensing.com/public/

• http://www.innovaro.com/

• http://www.yet2.com

Litigation

• Lexis/Nexis www.lexisnexis.com

SEC filing

• SEC EDGAR system www.sec.gov/edgar/

• EDGAR online: pro.edgar-online.com or www.tenkwizard

Databases

• www.recap.com (Deloitte)

• www.rDNA.com

• http://www.recapip.com

• http://www.recaprx.com

• www.royaltysource.com

• www. techagreements.com

• Disclosure Information, Inc. www.thomson.com/financial/fi_partners.jsp


http://www.knowledgeexpress.com/

http://www.knowledgeexpress.com/

http://pharmalicensing.com/public/

http://pharmalicensing.com/public/

http://www.innovaro.com/

http://www.yet2.com/

http://www.lexisnexis.com/

http://www.sec.gov/edgar/

http://www.tenkwizard/

http://www.recap.com/

http://www.rdna.com/

http://www.recapip.com/

http://www.royaltysource.com/



http://www.thomson.com/financial/fi_partners.jsp

http://www.thomson.com/financial/fi_partners.jsp

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3. Pieces Perspective

The ranking method:

Uses data from similar agreements

Uses a rating table to score the deal compared to known prices from

comparable deals


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The Georgia Pacific Factors:

LICENSING OUT SCORE IMPORTANCE OF FACTOR

4.2 Nature of Protection

4.2 Utility over old methods

4.1 Scope of exclusivity

3.4 Licensee’s anticipated profits

3.4 Commercial Success

3.5 Territory Restrictions

3.7 Comparable License Rates

3.1 Duration of Protection

3.1 Licensor’s anticipated Profits

3.6 Commercial Relationship

2.1 Tag Along Sales

Stephen Degnan and Corwing Horton, “A Survey

of Licensed Royalties”

5 = MOST IMPORTANT, 1 = LESS IMPORATN


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Common 5 factor approach

WEIGHTED

SCORE

WEIGHTING

FACTOR

SCORE OF 1

TO 5

FACTORS

0.4 0.2 2 STAGE OF DEVELOPMENT

0.8 0.2 4 SCOPE OF IP PROTECTION

1 0.2 5 MARKET ATTRACTIVENESS

(SIZE)

0.6 0.2 3 SUSTAINABILITY VS.

COMPETITIVE TECHNOLOGIES

0.6 0.2 3 INDUSTRY PROFIT MARGINS

3.4 TOTAL WEIGHTED SCORE


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4. Down Perspective

Rules of Thumb

The 25% Rule: the Goldscheider Principle: the Licensor should receive 25%

and the Licensee 75% of the pre-tax profits from a licensed product.

The second rule of thumb, converts roughly the 25% pre tax profit to 5%

royalties


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25% Rule

Meaning of the Rule

The royalty in dollars should be 25% of the savings in dollars to the licensee

by the use of the licensed technology

The royalty in percentages of net sale price should be 25% of the profit

before taxes, enjoyed by the licensee by selling products based on the

licensed technology


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Example of the 25% Rule

Percentages Thousand of US

Dollars

Annual Report of Company Y

100 1,249,512 Gross Sales

52 643,357 Cost of Goods Sold

48 606,155 Gross Margin

36 447,607 Sales and Administration

11 140,196 Research and Development

1 18,352 EBIT (Profit before Tax)

8,090 Interest

3,697 restructuring

9,674 Other

(3,109) EBT (profits after tax)

Should the royalty be 0.25 % from net sales?


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5. Forward Perspective

Discounted Cash Flow/Net Present Value:

The method consists of determining future cash flows, then discounting the

cash flows for the time over which those amounts are to be received and by the

associated risk of receive such cash flows.

When all such cash flows have been discounted they can be added to

determine the net present value (NPV)


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Also Named the Income Approach

Theoretical Background:

Value is determined by the economic benefit expected from use of the IP.

Value of IP:

Present value of the expected future income stream.

Key parameters:

Amount of income stream

Duration of the income stream

Risk associated with the realization of the income

Note: Two well known methodologies: Excess Earnings and Relief from

Royalties.


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Value: Risk plus timing and amount of future cash flows

METHOD OF CALCULATION OF NPV

xxx Sales

yyy Expenses

zzz Depreciation

rrr Royalties

EBT EARNINGS BEFORE TAX

ttt Taxes

EAT EARNING AFTER TAX

ddd Depreciation

iii Investments

www Working Capital

NCF NET CASH FLOW

NPV = Rn/(1+k)n Discount Cash by NPV

Embody risk in k Choose k.


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Calculation of NPV

Each year cash flow (R in year n) is discounted by dividing each cash flow (R)

by the term (1+k)n, where:

k - is the hurdle or discount rate

n – the year from the date in which the projected cash flow occurs

NPV = Rn/(1+k)n


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Discount/Hurdle Rates for Start-Ups

Hurdle Risk Stage of Development

Pre-seed funding 100 % Research and Development

New business, seed funding, R&D stage 50 – 70 % Start Up

New business product ready for sale, no

R&D required

40– 50% 1st Stage

New product and technology in existing

business

30– 40% 2nd stage

New product, existing capabilities, known

technology

25 – 30% Mezzanine/IPO

New product for existing manufacturing line

and market

15% Low Risk


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Example of NPV calculations

Investment or

Licensee’s

decision

Net Present Value Hurdle Rate = k

yes No Risk 126,000,000 0 %

yes Near Risk free, alternative

investment is 7%

49,000,000 7 %

yes Low but real risk 17,000,000 15 %

Barely yes Significant, technical,

market and other risk

1,600,000 30 % - 40 %

No, only if you

paid me

Start up risk - 800,000 40 – 50 %

136,000,000 Total Cash Flows 10,000,000 Investment


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6. Dice Perspective Montecarlo

Complex Mathematical modeling tools

A basic popular tool is the probabilistic model or Monte Carlo analysis

The tool works by replacing certain numbers in the calculation with a

probabilistic value. The model is run hundreds of time to develop a

distribution of outcomes


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Monte Carlo Simulation Software

The popularity of Monte Carlo methods have led to a number of commercial

tools.

Programs which work directly with Excel as add-ins:

Crystal Ball

Risk Solver

@Risk

DFSS Master

Risk Analyzer

MC Add In for Excel


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Plus and Minus of Monte Carlo

PL

US

• The model can be run over and over again with changing assumptions

• You get better understanding of the assumptions and their economic impact

• High risk technologies are not punished with high hurdle rates.

MIN

US

• There is never a right answer • Requires appropriate software and user experience


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About the other perspectives

6. Others Perspective: Auction

Technology auctions are rare, however patent auctions are not so rare

They are used for example in cases of bankruptcy or shut down

7. No farther Perspective:

Common sense

8. Market Perspective:

Equity – what is the value of a similar size, similar technology company

in the stock exchange?


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The Market Perspective or Approach

Theoretical background: value is based on the transactions of other

purchasers and sellers in the market place.

Value of IP: Arm’s length price paid in equally desirable and comparable

transactions.

Note: The Licensee is not willing to pay more than others have paid for similar

IP

Comparables: type of IP, industry, market size, terms and profitability.


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IP Value in the Market


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NASA wants to move beyond Technology Auctions

By Frank Morring, Jr.

Washington

NASA managers are looking for new ways to get the technology its engineers develop for

space exploration out into the broader U.S. economy, where businesses can adapt it for

commercial products.

A new request for information published on the FedBizOps website seeks suggestions on

how the space agency can work with intellectual property management services to match

advanced technologies at its field centers with private firms willing to pay for licenses to use

the publicly funded technology for private profit.

AviationWeek.com

NASA Wants To Move Beyond Technology Auctions Sep 21, 2010


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Patent Transaction

Basic Process

Review and estimate valuation of the assets

Diligence and preparation of the assets to market

Preparation of marketing materials

Identification and contact of potential acquirers

Fielding, negotiation of and advisement on received offers

Advisement on all aspects of documentation and transfer

Escrow Services (as necessary)

The Sale and/or License of Intellectual Property – Patents


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Conclusions

Valuating your technology is an excellent way to prepare for the negotiation of a

successful deal (win win)

The Valuation of the technology is an essential part of the technology transfer process

With a valuation you negotiate with a sound economic basis and not from an emotional

basis

Valuation of the technology is a way of determining the licensed technology value for the

customer (licensee) and not only for the inventors (licensor)

Using more than one valuation method gives you a broader perspective, and accounts

for a range of different factors


4 innovation

[email protected]

Elena Canetti - Israel Partner

[email protected]


11b valuation presentation v4i-intangible

Technology

basic methods

cash flows

market perspective

licensed technology

net present

valuation basis

development costs

technology