Intangible Assets: A New Method of Financing

Posted by: Mark Marich on April 02, 2010 Source: Policy Dialogue on Entrepreneurship

For innovative start-ups finding sufficient funding can be difficult, especially when much of their value takes the form of intangible assets.  In light of this, there is an emerging practice of funding companies based on intellectual property (IP) and other intangible assets including worker expertise, effective management, and innovative business methods. Kenan P. Jarboe and Ian Ellis explore this emerging practice in "Intangible Assets Innovative Financing for Innovation,"published in the latest release of Issues in Science and Technology. Here are a few highlights from the article.

In the United States, more than one trillion dollars are invested in the creation of intangible assets each year.  In 2005, the total value of those assets was estimated at $9.2 trillion.  Though intangible assets provide real value, they are often ignored in the financial system.  As a result, new companies who need financing cannot make use of some of their strongest assets.

Traditionally, companies have raised money based on physical and financial assets.  This approach does not take into account the revenue potential of high-growth startups.  Though steps are being made to encourage financing based on intangible assets, accounting and lending standards must be updated to take these assets into consideration.

Due to a lack of concreteness, the true value of intangible assets can be difficult to assess.  However, intangible assets are becoming more relevant in an increasingly technological world.  Recognizing the value of these assets can allow innovative new companies to thrive.

To read the article, click here.

Category:  General