Valuation of intellectual property
Introduction In the last few decades, businesses have begun to focus less on traditional physical assets (such as land, buildings, machinery, and equipment) and more on the development of intangible assets. One of these intangible assets is intellectual property. Intellectual property is critical to both larger corporations and smaller entrepreneurial firms. For large corporate entities, intellectual property often represents the most valuable asset on their balance sheet. More than 70 percent of the market value of public firms is represented by intangible assets. For these firms, intellectual property has not only become a key strategic asset, but also the foundation for value creation. Intellectual property is even more paramount to entrepreneurial firms, which often begin their operations in basements, garages, abandoned warehouses, business incubators, and other suboptimal venues. For these firms, intellectual property may be their only source of strong financial returns and value creation. These financial returns may not be crystallized immediately; they are often captured over a longer period of time. Moreover, intellectual property may not automatically generate value on its own. It only becomes a valuable “competitive weapon” in the hands of a superb management team which can commercialize, produce, promote, and manage it. Without the right management team, the value of certain intellectual properties may not be fully exploited (or realized at all).