By T.C.
A Palo-Alto-based firm plans to help high-tech software firms place value on their intellectual property in development, but it may not be an easy task.
IP Valuation Inc. offers software and consulting services to evaluate royalty streams associated with intellectual property development, with an eye to securitizating that revenue down the road.
Company president Blake Johnson said this financing --- similar to recent deals being done with music royalties --- would give cash-strapped high-tech startups a kinder alternative to venture capital.
"Securitizing their royalty stream is a very competitive financing option for these people," he said. "The legal and technical issues of IP have been addressed for some time. Now the time has come to address another critical issue: the price of IP."
The four-month-old firm --- the first of its kind --- has no deals in the pipeline to date. They have focused so far on helping their clients identify the timing and size of the royalties assocaited with their developments.
To do this, they designed a framework where defining certain rights --- triggered by the passing of each revenue "event" in the development cycle --- allows estimations of cash flows. These include the right to acquire IP, the right to market IP and the right to payments upon shipping of products using the IP.
But modeling a revenue stream doens't avoid some of the pitfalls facing any royalty-based issues, said David Pullman, of Pullman Group LLC.
"90% (of these IP royalty deals) have obsolescence issues," he said. "Most of it will be non-investment grade."
Pullman's firm is better known for dealing in securitizing entertainment royalties, but he said determining royalty flows from an unsold and unproven piece of intellectual property is "more art than science."
"We wouldn't do it," he said.
ASSET SALES REPORT FEBRUARY 22nd, 1999