IP finance: a ten-year perspective

WIPO has just published the latest Country Perspective in its 'Unlocking IP-backed Financing Series'. This time it covers the United Kingdom's journey, as compiled by the UK Intellectual Property Office, and edited by yours truly.

You can read the full report here.

This is a journey with which we at Inngot are very well acquainted. Ten years have now passed since I wrote the Banking on IP? report for UK IPO with Kelvin King , so editing this report has provided an opportunity to reflect on the progress made in the interim, and the prospects for more activity in future.

Back in 2013, we articulated the benefits of taking intangible value properly into account when considering a business’s ‘substance’. We identified areas in which the legal and regulatory environment had not kept pace with the rise of this asset class, but explained why none of these complications were real barriers to engaging more actively with IP.

Signs of progress

In 2013, the theoretical arguments were compelling, but there wasn’t a massive body of hard data to draw on. Also, studies highlighting links between business performance and intangible value were generally US-centric (like the valuable work of Kenan Jarboe and the Athena Alliance, and of course of economists Carol Corrado , Charles Hulten and Daniel Sichel, among others).

Looking back now, it’s apparent that the international evidence base has strengthened considerably. One of the most important contributions has been the joint publication by UK IPO and the British Business Bank, Using Intellectual Property to Access Growth Funding, which appeared in late 2018. If you’ve not read it, and you’re interested in #IPfinance, you should - it's right here.

The core of the report was its statistical insight into the outcomes of loans backed by government guarantees (chiefly to compensate for the absence of tangible assets as security). The results were pretty striking. Where registered IP rights were present, propensity to default fell by almost 40%, and loss given default by 50%.

While not proving a causal relationship, this represented valuable hard data to show lenders a clear and statistically significant link between IP and better payment performance.

Several further rounds of research-led books and reports have made the economic case for change very clear. From the provocatively-titled The End of Accounting by Baruch Lev and Feng Gu, to the insightful Capitalism without Capital by Jonathan Haskel and Stian Westlake (both highly recommended reading), it’s become clearer that intangibles are now simply too important to be ignored (and indeed that the UK’s productivity issues could be linked in-part to the lack of clear intangible understanding). Our own research for OECD, particularly the not-very-catchily-titled Fostering the use of intangibles to strengthen SME access to finance, has also helped moved the conversation on a bit.

A positive outlook

It is very significant that World Intellectual Property Organization – WIPO has chosen to put its considerable resources behind encouraging and promoting IP finance. It is a pleasure to work with Allison Mages and Michael Kos , and it's always good to know that importance of the topic is appreciated right the way to the top (thank you, Daren Tang !).

For our part, in 2024, Inngot will be doing all we can to advance the theory and (more importantly) the practice of IP-based finance. Our tools and systems are already actively helping some of the UK’s largest lenders, like HSBC UK and NatWest Group, to give proper consideration to IP value, in the way we called for ten years ago. We look forward to announcing more national and international lenders over the course of the year.

Ten years has been quite a wait. There’s little doubt that without the pandemic, IP financing would already be a more mainstream activity. Unfortunately, not long after the UK IPO/BBB report come out, businesses had to re-focus on survival, and our leading banks on supporting them. Appetite to cater for the needs of scale-ups, who have most to gain from IP-based finance, was dented.

Fortunately, that appetite has returned over the past couple of years, and banks are now able to return to providing support for growth and innovation. And in the overall scheme of things, maybe a ten-year journey isn't that bad.

In December, we marked what would have been my father’s 100th birthday. Not long before he died, he finally received the Arctic Star, to recognise the extraordinary service of those who manned the Arctic Convoys.

When he was interviewed by the BBC about the inordinate length of time taken by government to recognise the many who endured the mission Winston Churchill famously called "the worst journey in the world", his dry response was, “Well, it’s only seventy years, I suppose…”