Semiconductor IP News and Trends Blog
Semiconductor IP is the new Black for Bankers
New regulations may create an insurers market for IP that may have investors betting against startups rather than funding them.
“IP is the new black” could be the latest catchphrase used by US banks to circumvent new capital requirement laws. It’s all part of the Basel III rules. But you don’t need to be a financial wizard to understand the implications for intellectual property (IP) creators.
Loans require collateral. Regardless of your stature – be it fabless start-up or established IP vendor – if you can’t pay your bills and end up in foreclosure, then lenders (banks) have the right to seize the borrowers (your) patents and trademarks. The problem is that patents, trademarks and IP are intangible assets that are difficult to value, unlike physical widgets or finished products. To bankers, ideas are the stuff of dreams, not fungible and transferable assets.
Tighter regulations have forced some banks to find new ways to value intangible assets like IP to reduce the overall cost of a loan. How can these intangibles be valued? Apparently, by insurers who agree to buy a borrower’s IP for a fixed price in case of default. Thanks to recent large acquisitions based upon IP, this approach is gaining credence among the investment community (see Icahn story). According to the Financial Times, last year’s Nortel bankruptcy resulted in the sale of the company’s wireless patents that, “generated $4.5bn, five times the price originally offered by Google.” (see, “What is the Freshness Date on Nortel’s IP Patents?”)
Some feel that if this structure – insured IP values – is proven successful, it will make it cheaper for banks to lend to tech and biotech start-ups. In essence, it gives banks a way to reduce loan risk to small businesses which are idea rich but asset poor.
One wonders who will be the IP insurers for these bank loans. How will this approach change the M&A market? For example, will this approach cause investors to fund insurers instead of startups, i.e., to bet against a start-ups success but for the startups IP in case of loan default? Time will tell.