This Intanify Insight sets out examples of these and some of the players. None of these are at scale, however, and in future pieces, we will explore the complexities, possible reasons for that and how the future will likely be different.
Intellectual property (IP) backed loans are the most straightforward: much like securing a loan with your land, a lender will take IP like patents or trademarks as security against a loan. The UK’s Natwest announced a new IP-based lending scheme last week; large banks like HSBC with its Growth Lending business has a £250m pool of assets and Bank of America has a 1,400+ patent-backed book.
However, only some companies have acceptable IP - most have other assets like code and data.
Furthermore, these banks tend to require equity buffers or cash flow and make relatively few loans (HSBC’s Growth Lending has done just about 10 deals) or to only large companies.
Royalty securitisations involve transforming future royalty streams, such as those generated from patents or licensing agreements, into financing today. This is common in the creative industries, for example, “Bowie Bonds” but is becoming more present elsewhere. A case in point is patent royalty financing, where companies can securitise the future revenue from licensing their patents – investors pay now for a share of the future revenues of a patent. The company can then use this investment to grow more than they otherwise could.
Leeward Capital's Sale-to-Service® introduces an innovative approach to financing intangible assets. Before, a company with a physical asset like land would sell it, lease it back (using the land like nothing changed) and use the proceeds to grow the business. It may then buy it back later. Leeward has reinvented the sale-leaseback for a company with data rather than land.
A company sells its intangible assets, like data or proprietary technologies, to Leeward with the option to buy it back. The company then licenses back the rights, using the data or technology in its business as it did the day before, unlocking the value tied up in its intangible portfolio while maintaining operational control but now with new capital it didn’t have to dilute to receive.
unlocking the value tied up in its intangible portfolio while maintaining operational control
We discussed these with Leeward’s founder, Matthew F. Hagen, in this interview.
Bespoke financings, such as dropdowns, present another innovative solution for intangible asset financing. These are typically very large - $100m’s to $10bn’s – and executed by top full-service law firms like Davis Polk with a top-tier investment bank. One example is the $800m financing of Azul, leveraging its loyalty program and brand. In this model, a company borrows while simultaneously licensing out and licensing back in its intangibles to the lender or its agent. As with sale-leasebacks, the company continues to use its core assets as if nothing changed. However, it now has growth capital without having diluted. We spoke with Partner and IP, Tech & Commercial Transactions practice head Frank Azzopardi about this topic in this interview.
Azul now has growth capital without having diluted.
These innovators and their forward-looking financing structures are extremely encouraging and demonstrate the art of the possible. However, they barely scratch the surface of the $60 trillion intangible assets and do not reach 99%+ of the companies which could benefit from unlocking finance. Clearly, there are challenges and complexities, not least the fact that these assets are not recognised or valued at scale. Future Intanify Insights will delve deeper into these ideas and how the future may evolve – it will have to as the status quo just doesn’t cut it.