The report states that
Small and Medium sized Enterprises, or SMEs, are the lifeblood of the UK economy. Their ability to grow is a key determinant of the nation’s future economic health. In recent years, businesses of all sizes have been investing more in intangible assets, in particular Intellectual Property (IP), than in fixed or physical assets. This study sought to examine how effectively SMEs are able to use these assets to secure the finance they need for company growth.
IP: an under-appreciated asset class
Company cash flow, perhaps the chief consideration in debt finance, is often closely connected to company IP assets. Despite this, and good evidence to show that high growth, IP-rich businesses are more resilient and perform better than others over time, the IP and intangibles which equity investors value highly are rarely considered in mainstream lending practice. This is unsurprising: balance sheets do not represent their value, and current regulations actively work against consideration of IP as an asset class but the result is a real and important disconnect between banking regulation and practice and the UK’s ambition for growth. Recent banking initiatives targeting growth businesses are finding that traditional fixed assets simply no longer exist. In the asset based lending market, too, many examples have emerged of transactions where control over intangibles is recognised as being important. IP and intangibles are, in effect, unbankable. Change seems inevitable: how can it be accelerated?
The key recommendations of the report include the design and assembly of a resource toolkit and supporting services. When integrated, these will:
• help old and new economy businesses identify and communicate their IP and its relationship to cash flows
• help companies and lenders understand the business value of IP
• improve efficiency in due diligence on IP assets
• improve practice in obtaining reasonable and effective charges over IP
• make room for development of more effective IP markets, supported by a better information infrastructure
• enable risk to be reduced through insurance and other mechanisms