With entire workforces laid off, factories and offices closed, and city streets practically deserted, it is clear that the Coronavirus (Covid-19) is having a crippling impact on the world economy.
The draconian measures many countries have adopted to curb the spread of the virus have naturally led to a stark fall in economic output.
With governments across the world creating new funding schemes to bail out companies there may be alternative financing strategies that SMEs can turn to their advantage. One of these is the commercialization of their existing and new intellectual property (IP).
A joint study in 2019 by the European Patent Office and the European Intellectual Property Office showed that SMEs that owned one or more IP rights (e.g. a patent, trademark or registered design) were 21% more likely to experience a subsequent period of growth and 10% would be more likely to go onto become a high growth firm. Furthermore, those SMEs owning a European IP right were 17% more likely to experience high growth.
Using an intangible asset such as IP to raise cash is not a modern concept. As far back as the late 19th Century, Thomas Edison famously raised much needed finance for his fledgling company by using his patent for the electric light bulb as collateral. His business would eventually become the General Electric Company.
Since then many other examples can be seen of how businesses have survived in times of recession.
The Great Depression of the 1930s was the longest, most severe economic depression to hit the world but despite the obvious financial hardships there were incredible inventions that emerged from these troubled times: in 1937 a New York patent attorney invented electro photography (later termed xerography).
Commercial rights to the xerography process were obtained and a small New York firm, The Haloid Company would later become the Xerox Corporation, hailing the photocopying process, one of the most recognised inventions of the 20th century.
Despite the recession that plagued the 1970s, the decade was a booming time for the Japanese automotive industry, with expanding export markets, even during the oil crisis.
In the early 2000s the economic recession at that time also saw a new product enter the marketplace which would cement its owner as the market leader in all things gadgetry: Apple introduced the iPod.
From this small music streaming device Apple cleverly wove its technical genius and beautiful designs into the fabric of our lives. Apple’s net income grew from 1.33 billion US dollars in 2005 to 55.26 billion US dollars in 2019 (source: Statista Research Department).
Before the 1990s, when companies looked to raise capital they looked to leverage tangible assets such as property, equipment, machinery and physical cash.
The last twenty years has seen a dramatic shift towards intellectual capital, with intangible assets (such as patents, trademarks, and copyright) taking the forefront when we look at the value of a company.
According to Brand Finance, Microsoft held the top spot in 2019 ranking highest for its intangible value: this company is a global leader in the cloud business. You could say it has its head in the clouds but in a positive way!
Returning to the matter of IP and collateralization.
The fact is that if you own IP you have the potential to monetize this IP. As IP is personal property it can be sold, licensed and even mortgaged; (there are specialist lenders out there to assist).
Licensing is a good way in which IP can be utilised as a reliable income stream, if the market is there to buy into it.
As a licensor (the owner of the IP) with an established brand it may not be something you had considered before. Look around you, it doesn’t take long to see examples of licensed goods, from sunglasses to t-shirts, and cookware to cologne.
For example, perfume by Dolce & Gabbana may be the product of Proctor & Gamble who have paid for the licensing rights to sell perfume using the mark. It is clever marketing and it works.
History has told us that it is those companies that have still been able to innovate during a turndown in the economy that have emerged from the hardships stronger and with a more competitive edge.
There may not be huge cash reserves to splash out on new tech within a firm but if a company can realise the value of its IP then the cogs can keep turning and the future will be brighter.
