The value that intellectual property provides shouldn’t be viewed strictly in revenue terms. It can also serve as collateral to secure various types of financing. Of course, lenders require legal documentation to prove that these assets are indeed proprietary.
“If a business is interested in leveraging its intellectual property by offering it up as collateral for a loan,” says Bonnie Kehe, the senior vice president and regional managing director for Comerica Bank’s Technology & Life Sciences Division, “that business owner should ensure that it is properly patented, trademarked, copyrighted, etc.”
Smart Business spoke with Kehe about how value is assigned to a company’s intellectual property, the steps that a business should take if it’s interested in securing a loan with these assets and why an increase in this financing option is a good sign for the tech sector.
What types of businesses tend to use intellectual property as a financing option?
Businesses that have a valuable portfolio of intellectual property. A software company, for example. A medical device company, where the technology is their own, and they’ve actually designed and developed the product. Most companies have some sort of intellectual property such as trademarks. Also, there can be value in a branded name, which is intellectual property.
How do you assign value to a company’s intellectual property?
It’s typically a subjective valuation and it’s based on a variety of factors. For example, if you can project future cash flows based upon the sale of a product that is your own, like software, then you can come up with a value of that intellectual property.
In the situation where a company has institutional investors, like venture capitalists, then the investors have likely assigned a value to the company in connection with a recent financing.
The third way would be independent intellectual property appraisers that institutions hire to value a company’s intellectual property portfolio. Again, the valuations are based on a lot of different matrixes, including discounted cash flow.
How important is it for CEOs or business owners to look after intellectual property not only as a legal asset, but also as a financial asset?
If the company is planning on leveraging the intellectual property portfolio, or if there is intellectual property that is integral to its business, than it’s very important. The CEO or business owner should ensure that it’s legally registered and properly protected.
What are the first steps that a business should take if it’s interested in securing a loan with intellectual property assets?
There has to be some matrix for assigning some sort of valuation, even though it may be a very subjective valuation. If it’s just a brand name that the company is looking to leverage, there are some lenders that will lend against brands. What’s key for other lenders is that the intellectual property is adequately protected it’s registered, it’s patented.
In the case of software, it needs to be not only copyrighted, but also registered with the Library of Congress. So there is a two-step process with the registration and copyright of software.
Also, the business should work with intellectual property attorneys, because there are a lot of law firms that have special practices specifically related to intellectual property.
How common of a practice is it to lien intellectual property when making a loan?
In middle-market lending it is not terribly common. It is very common if a financial institution is banking a technologically driven company, meaning a company that is deriving a part of its revenues from its intellectual property.
Do you expect to see an increase in using intellectual property for financing options?
We hope so because it’s indicative of a strong technology market. With the dot-com bust, the entire tech sector was in a trough from 2000 to 2003, 2004, and we’re now just beginning to see some activity. The sector is here to stay.
It’s the future, both on the life sciences side as well as the information technology side. We would hope to see continued growth in the financing of tech companies. A lot of it is going to be an economy- and industry-driven phenomenon.
Bonnie Kehe is senior vice president and regional managing director of Comerica Bank’s Technology & Life Sciences Division. Reach her at (714) 433-3266 or email@example.com.
Steve Kessler, CEO of Sander A. Kessler & Associates Inc., believes a well-crafted disaster plan is the key to ensuring a businesses’ survival in the wake of a catastrophe. “The best thing to do is to keep the business operating. The best way to keep the business operating is to have a disaster preparedness plan. By keeping the business going, I keep my customers, and if I keep my customers, I keep my employees,” he explains.
Smart Business talked to Kessler about creating a disaster preparedness plan, the importance of backing up data and the virtues of business interruption insurance.
Both man-made disasters and natural disasters can cripple a business. How can being proactive and preparing for the worst-case scenario help a business reemerge from a catastrophe?
It can mean the difference (between) being able to go back into business or not recovering at all.
Having a solid disaster plan in effect might put you in a position to not only reemerge from the disaster more quickly, but also attract business from competitors who were not as well prepared. While they’re still trying to figure out what to do, you’re already back in business and providing products and services to not only your customers but their customers, as well.
When formulating a disaster preparedness plan, what steps should a CEO or business leader take?
They should ask themselves the question what if? What if it is a fire within their own locale? What if it is a quake or a flood that affects the whole city? Can they operate from another location? Can they get their equipment? How do they communicate to their customers that they’re still in operation? How do they get their power and their water?
It is important to ask these questions. And they should not do it alone, they should include the strategic people in the organization because multiple heads are better than one.
What type of information should be included in a crisis communication plan so that a business leader can stay in touch with their employees if a disaster strikes?
Number one, you should create a telephone tree so that there is a process where people within the organization can contact all of the associates or employees and notify them of what the plan is. All of the owners, leaders and managers should have a copy of the plan along with their areas of responsibility. The associates don’t have to have a copy of the plan, but they should be aware of it and know what their responsibilities are, if any.
How important is it to back up computer data frequently and keep a backup tape off site?
It’s critical. In fact, it’s so critical that we have three layers of redundancy. We use a service in Calabasas that has two servers constantly replicating our data. We have backup tapes that go off site daily to a local storage facility. Then we have weekly backup tapes that leave the state and go to Arizona.
Without data you’re finished. Whether it be customer based information, accounts receivable or accounts payable, this information is critical.
What advice would you give about obtaining business interruption service?
This is the single most overlooked area of insurance. Business interruption covers continuing expenses, the profits you would have earned had the disaster not occurred and salaries of key personnel. Without it most businesses don’t the have the financial means to cover these three critical items.
People think they’re going to be back in business in a couple of months, but if your building goes down it will take three months just to secure permits. Then you have to build.
And if you have a natural disaster, everyone is scrambling for contractors and permits so you’re going to be down longer than you thought maybe up to a year. If you don’t have this type of insurance, you might never get back into business because you will lack the financial resources.
What are some other types of insurance coverage that should be in place?
You need to always insure your property to the full replacement cost value for building, inventory and equipment. If you’re in a flood plain, such as our recent situation in Louisiana, you need to carry flood insurance. If you’re in an earthquake-prone area such as California, then you need to carry earthquake coverage.
Also, the policy should contain building ordinance insurance which covers demolition costs, increased costs of reconstruction and any loss of value of the undamaged portion of a damaged building. At the time of a loss, no one ever complains that they have too much insurance.
Steve Kessler is CEO of Sander A. Kessler & Associates Inc., a property and casualty insurance and employee benefits firm. Reach him at (310) 309-2200 or firstname.lastname@example.org.
Today, McGinnis Sisters Special Food Stores has evolved into two specialty food stores, with locations in Monroeville and Brentwood, and a staff of more than 100.
Next year, the sisters plan to open a third location in Mars. Campbell says high demand for specialty food items is one reason for the growth; another is a growing trend among second-generation Americans who are sick of fast food restaurants, are exploring their roots and want to sample dishes unique to their heritage.
Accordingly, Campbell stocks the stores with delicacies ranging from crab-stuffed mushrooms to kielbasa.
Smart Business spoke with Campbell about growing the business, working with family and keeping McGinnis Sisters’ ideas fresh.
What early lessons did you learn from working at the store with your parents?
Growing up in the business taught us a work ethic and responsibility. Our parents were very old-fashioned, so if you wanted something, you had to work for it.
When we were younger, of course, we didn’t like it because we wanted to go out on dates and be with our friends.
How did you grow the business into two specialty food stores with more than 100 employees?
We found it very difficult to compete with the local chains because we couldn’t even buy the product as cheap as they were selling it. So we jumped into specialty foods. A lot of women were starting into the work force, and I think their lifestyles changed.
Women felt like they could do it all, including having a family and a career. We provided home meal replacements before anyone ever thought of that, and convenience type things to make people’s lives easier.
Jumping onto the specialty food bandwagon was very good for us. There were new things coming from overseas, and people were very interested in cooking. Also, people empathized with us that we were females in a very male-dominated industry.
What are the advantages and disadvantages of working so closely with your family?
The advantages are that we really love each other and we’re very flexible with each other. We want each other to succeed. We don’t have that bitter fighting that some families go through.
It wasn’t like we were best friends growing up, but we’ve really come to be best friends now that we’re older. The only disadvantage I can think of is that we were so close and our kids were raised together. Sometimes you need a little break.
Where do you see McGinnis Sisters 10 years from now?
We’re going to open a new store next year. My sisters and I are kind of getting into our sunset years but we enjoy the business and want to continue working. My job is to bring in the third-generation members of the family, and I have one already in the business who has been here a little over a year.
We mentor them and find out if they’re really, truly passionate about it. The future will be what they want to see. They are, of course, full of excitement and vim and vigor.
What strategies do you use in managing your employees?
I think we’ve taken a lot from our father. He used to say, “Love your employees.” Not in a romantic way, but do as much as you can for them without hurting the business.
We’ve tried to uphold that as one of our keynotes and want to keep that as we go forward. We are going to get larger but we don’t want a corporate feel, we want a family feel. I think we are very open communicationwise.
We are different than men in that we do a lot of consensus-building. Whether that’s good or bad, I’m still not sure, but that’s just our style.
What’s the most rewarding part of your job?
When people say that they really love something, like one of my mother’s recipe. It sends chills up your spine to know that you’re keeping the reputation alive.
We’ll be in business 60 years next year, and my parents have both recently passed away, so it just makes you feel really good.
How to reach: McGinnis Sisters Special Food Store, (412) 884-2323 or http://www.mcginnis-sisters.com