Value Realization via Intellectual Property

The primary drivers of corporate value have changed over the past few decades, yet financing alternatives for these companies have not kept pace. Intangible assets such as intellectual property (IP) now make up the overwhelming majority of assets that drive growth. But it has remained difficult for early-stage companies, especially those with limited cash flow, to secure financing. An innovative new financial market has emerged, with tremendous momentum and potential to help unlock previously untapped value.

The Problem

Historically, companies seeking financing for their high-growth, IP-rich operations have had essentially two options: accessing debt in the private credit market or raising money through dilutive means like venture capital equity. Each method has advantages and disadvantages. For example, while debt can be less dilutive and therefore less expensive, it can bind a company to a restrictive repayment schedule. It also tends to be more limited in size of capital raise. Alternately, while venture capital equity can be much larger in size of capital raised, it can dilute ownership, making it potentially prohibitively expensive. It can also take longer to fund.

Lenders face a dilemma as well. While IP-backed loans historically have had very low default rates, accounting practices for valuation of assets like IP have not kept pace. This inhibits many lenders from pursuing this asset class as potential collateral.

The Solution

With much of the value of a company attributable to intellectual property, an innovative method to value these assets and provide lenders with risk reduction options to make IP-backed loans was necessary. Enter Aon, and its collateral protection insurance (CPI) solution. Aon uses proprietary tools to value intellectual property at speed and scale. This valuation process helps to enable insurance underwriters to provide an insurance policy that can help protect the residual value of that collateral, thereby helping to protect the lender’s potential downside and enabling them to extend an IP-backed loan. Ultimately, these solutions unlock IP as an asset class.

With this innovative IP-backed lending marketplace, created by Aon, companies can access the financing they need to help scale their operations with potentially less dilution. Lenders can fund these companies making loans that are informed by the innovative valuation of the collateral together with the backing of insurance available on these transactions, which in turn can enable larger deal sizes.

Industry Momentum

The approach is working. Aon completed one deal in 2020 when the program launched, five in 2021, and more than a dozen through Q3 2022. So far, over $1 billion in capital has been raised in the CPI marketplace¹. There is clearly an appetite for this in the market, with engagement from leading global lenders and, increasingly, borrowers of growing scope and complexity. Further, the global insurance marketplace continues to innovate alongside Aon and the lenders, with insurers across Bermuda, the US, and EMEA all participating. That points to significant potential in the coming years as more companies look for access to capital that has traditionally eluded these types of firms.

What to do next

The process is simple. Engaging a trusted advisor like Aon can allow a business to be better informed as to the value of their IP, which can help lead to a better valuation of their company overall. The CPI policy can help lenders minimize their risk, allowing them to make better decisions about what types of businesses to fund. In addition, the insights brought to bear by the valuation process can help companies direct future strategy to enhance their IP portfolios. It can give lenders and investors more insight into the growth potential of the companies they fund. Finally, it can provide significant growth capital to innovative companies across the globe.

¹ Aon’s facilitation activities include transactions where Aon placed insurance, valued IP, or arranged or provided financing, or undertaken a combination of these activities.

Insurance products and services offered by Aon Risk Insurance Services West, Inc., Aon Risk Services Central, Inc., Aon Risk Services Northeast, Inc., Aon Risk Services Southwest, Inc., and Aon Risk Services, Inc. of Florida and their licensed affiliates. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy. Coverage may not be available in all jurisdictions.

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Aon will not undertake to update or review any such information contained herein, including without limitation any process described herein, whether as a result of new information or any future event or otherwise.

Aon makes no express or implied warranties or representations with respect to the information herein (or the results to be obtained by the use thereof), and to the maximum extent permitted by applicable law, Aon expressly disclaims all implied warranties (including, without limitation, any implied warranties of originality, accuracy, timeliness, non-infringement, completeness, merchantability and fitness for a particular purpose) with respect to the information herein. Reliance upon information in this document is at the sole discretion and risk of the recipient. Aon expressly disclaims, to the maximum extent permissible under applicable law and regulation, any and all liability or responsibility for any losses or damages, whether direct, indirect, special, punitive, consequential (including lost profits) or any other losses or damages even if notified of the possibility of such losses or damages, arising from the use of, or reliance on, the information contained in this document.

Nothing in this document should be treated as an authoritative statement of the law on any particular aspect or in any specific case. It is provided for informational purposes only and should not be taken as financial, investment, or legal advice and action should not be taken as a result of this document alone.