FEB 19th 2013 (Recap): How Much Is It?….How Much Is…What? (The Nightmare of Valuating Intangibles)

Welcome to Pillsbury! Our good hosts know that it is always good to start good conversations off with a happy stomach!
So…How DO you value intangible assets? It’s a great question that you could probably discuss for a whole day and still have more ground to cover. Last Tuesday, thirty or so business minded individuals gathered to hear three people with varied perspectives tackle this question on the campus of Pillsbury Law.
The first to speak was David Jakopin, JD, a lawyer from the Pillsbury firm.  He gave an overview of what intangible assets are from the point of view of the law. In general, those are considered to be your ideas, and from the perspective of the law, the best way to protect them is to patent them–or perhaps file a patent but leave it as pending on purpose (which protects your idea by law but also leaves it a secret). Jakopin presented an outline of the timeline of many companies in the Silicon Valley. Years one and two are for idea and product development (including patent application); years three and four are when the product is introduced and (hopefully) gains momentum in the marketplace. If the patent (or patents) was applied for early enough, it should be issued sometime during years four and five. In an ideal world, the IPO happens sometime during or after year eight. If this happens, then you know that you probably handled your ideas and patents pretty well.
After Jakopin gave his presentation, our moderator for the event, SVII founder Howard Lieberman, opened the floor to the audience for questions. “Innovative people tend to deviate from linear ways of doing things,” he said.
One question that came up was whether it’s sometimes better to skip the patent process because of the high cost in time and money (paying the lawyers). Yes it can be, said, Jakopin. It depends on  the timeline that you are working on and the potential to build competing products using existing technology that you didn’t patent. However, it’s still good to consult a lawyer to see whether they recommend seeking a patent or not. A good lawyer will give you an honest answer about whether or not it is worth it.
One thing for entrepreneurs to keep in mind is that patent laws in the US are changing. The rights to an idea will soon be going to whoever files a patent first, rather than whoever has the idea first. This has some theoretical pros and cons, but most of the world does it this way already, so at least consistency in that area will make some things easier. The pro argument is that this prevents people from inventing something and then hiding it and then bringing it out after someone else has developed it also. The con argument is that the legal costs of patenting things may be going up, because a premium will be placed on patents that are filed quickly.
One of the ideas that Jakopin does recommend for certain things is what is known as a “submarine patent.” This is where you file a patent, but purposefully keep it as “pending” for a long time by periodically filing continuations. The idea is that you can legally guard your idea, but also guard the privacy of it by not having the patent be public (as granted patents are).
While there is a lot to be said for patents, the system still has some controversy, and most people who work with it wish that it was much more efficient.
Our next speaker was an economist: Joel Jameson of siliconeconomics.com  who focuses on innovation in the accounting space. He focused on value from a broader perspective, later bringing it to bear on the idea of intangible assets.
The value of something is highly dependent on its context. (E.g. water in the desert is more valuable than water to someone eating spicy food, which is more valuable than water to the average person in their own home.) This also applies to the context of time. Money now is more valuable than money in the future (why people will pay to borrow money). This applies generally to most assets.
A key component of intangible assets is numerical uncertainty. This is what makes them so difficult to grapple with: assessing their value will fall somewhere in the spectrum of hard to impossible, but that is also an aspect that makes them fascinating.
In considering the value of an intangible asset, says Jameson, you should make sure to consider three things: cost, market, and income potential. Income potential is generally the most difficult of those to predict, so you use the market to help (i.e. look for comparable products already on the market). Then you use the cost vs the income potential to determine if the intangible asset is worth exploiting (turning into a product).
Another angle to approach valuation is to consider these valuation drivers: Time–how long will it take to turn your intangible asset into tangible money? Scarcity–How rare or unique is the product you will be making with your intangible asset? The pain-killer vs vitamin factor–“pain killers” are more valuable, because people will pay a lot to get rid of pain, but “vitamin” type products need a lot more selling and convincing. Big companies buying other companies that they view as a threat to their business is another example of this: they buy the company to eliminate a threat (get rid of pain), but they won’t spend nearly as much to pursue an opportunity. Risk–what kind of risks are you taking on if you try to turn your asset into a product. Complementariness–I.e. does your product work well with the rest of the world; if not, it may be before its time. Build the necessary infrastructure first; that could be a product of its own.
Then we moved back into the nitty gritty with our next speaker: Neil Sherman, an engineer who founded his own company (Tag-Connect) that builds serial connectors for circuit boards.
From his perspective, the patent process was not very helpful because it cost him so much money to get patents for his project. He also brought somewhat of a new perspective on the idea of intangible assets by saying that people are the most important intangible asset. That’s an important point because it is quite difficult to quantify the value of individual people in your company, but you know that no company can function without people. This has some important off-shoots as well. Trust within a company is another huge intangible asset. The fact that it is an asset is indisputable, but trying to quantify it can be very difficult. Teamwork and other relational qualities are other intangible assets with similar qualities. These assets defy traditional accounting principles, and perhaps accounting will always ignore them because they are so difficult to quantify. But this shows a flaw in the accounting paradigm, because they affect the value of a company greatly. Perhaps a first step in grappling with this conundrum is to acknowledge that accounting will only partially illuminate the true value of a company.
Intangible assets is a broad category, and the different assets in it each have their own complexities. However, the main thing to remember about them is to not forget that they’re part of the equation and that they need to be considered when you are evaluating a company, a person, or a project.
Don’t forget to join us on our next conversational adventure coming up this Wed: Achieving Intimacy AND Reach Through Social Media! (7pm at Sheppard Mullin Law, 379 Lytton Ave., Palo Alto 94301)(Pre-Registration Tickets ($20)  – on SALE NOW!)

FEB 19th: How Much Is It? (The Nightmare of Valuating Intangibles)

“Every thinker puts some new portion of an apparently stable world in peril.”  – Thomas Dewey, Characters and Events, 1929

ENGINEERS: If you are so smart, why are all the honors club rejects who flunked organic chem…also the ones passing out all the gold?

ACCOUNTANTS: How the heck do you certify that a company without revenue, eyeballs, product, alliance, IP deal, or even a marquis team is worth its valuation on paper? 

LAWYERS: To you, reputation IS gold.  If the initial valuation is too low, then the founders are screwed. If the initial valuation is too high, then future investments may not be possible without a reverse stock split.. which rarely happens.  How do you decide?

ECONOMISTS: If you call youself one, we know you have something to say.

Come find out how the alligator can wrestle with the cobra while the monkey steals back its banana from the cobra’s den, and all three can still come out alive… and winners!

Join us this Feb 19th, at the offices of Pillsbury Winthrop Shaw Pittman LLP:

2550 Hanover Street
Palo Alto, CA 94304

*Refreshments (besides bananas..) will be provided.

Pre-Registration Tickets ($20)  – on SALE NOW!

6:30 – Registration
7:00 – Refreshments & Networking
7:15 – Panelists’ Presentations
8:00 – Panel (moderated by Howard Lieberman!)
9:15 – Wrap-Up (Networking till close at 9:30)


Mr. Jakopin has 24 years of experience in IP litigation related matters. He also advises clients on strategic IP issues and licensing issues, particularly in the context of mergers, acquisitions and investments.

Mr. Jakopin spent the first 10 years of his practice in Washington, DC, dealing primarily with IP litigation matters, particularly those involving complex matters relating to high technology electronics in the patent and trade secret arena. After moving to Silicon Valley in 1997 to lead the efforts in building the firm’s IP practice there, he expanded his practice to also include strategic IP matters for the firm’s private and public companies. He was the head of the Silicon Valley IP Group from 1997-2003.

With a strong technical background in electronics, Mr. Jakopin brings a unique combination of talents when litigating IP disputes, having particularly significant experience in Reexamination proceedings relative to technically complex electronics matters. This technical background also proves highly valuable to clients on licensing strategies, intellectual property acquisitions and sales, IPO’s, cross-border issues and other strategic IP issues.

In addition, Mr. Jakopin has broad experience on matters that have an international focus. Over his career he has spent significant time in Europe and Asia dealing with a wide range of IP issues, and continues to represent multinational companies as well as those based in the United States.

Mr. Jakopin is a member of the U.S. District Court for the Northern District of California Intellectual Property ADR panel and is a member of Arbitration and Mediation Committee of the American Intellectual Property Law Association. He has also served from time to time in the capacity of an expert witness.

Founder & CEOSilicon Economics
Joel Jameson, founder and president of Silicon Economics, is an economist. His specialty is developing and applying mathematical computer models to enhance economic decision-making. He has developed and enhanced software systems for bank merger and acquisition evaluation, residential mortgage-portfolio valuation, cost accounting, probabilistic electrical-generation costing, national accounts (import/export), manufacturing and construction scheduling, strategic weapon systems, and consumer preferences. Some of his consumer preference work was with Richard Johnson, a primary developer of consumer choice modeling, and Booz-Allen & Hamilton.

Mr. Jameson founded Orchard Associates, Inc., a software company specializing in market research software, which was subsequently acquired by a British multinational, AGB Research.

Mr. Jameson is an advocate for accounting reforms, with commentary appearing in The Financial Times, Accounting Today/WebCPA, and Research in Accounting Regulation.

Mr. Jameson studied postgraduate economics at the University of Chicago and has an A.B. in Mathematics and Economics from Occidental College. He served as a Peace Corps volunteer in the Fiji Islands, heading the trade section of the Bureau of Statistics. He was an All-American distance runner in college and currently runs.

A member of the American Accounting Association, the Small Business Entrepreneurship Council, TechAmerica, and the Silicon Valley Intellectual Property Association, Mr. Jameson resides in Los Altos, California.

Founder & CEOAdvanced Bitnology
Neil Sherman has years of expertise developing products containing all kinds of embedded processors. Neil is an Embedded Systems Consultant specializing in getting the most out of a little and excells especially in the area of low power.

Neil is one of an informal team of independant consultants who regularly work together and can bring a high level of skills and competancy to most any project.

Neil spent 11 years as Druck’s first software engineer and developed the firmware and electronics for a range of Digital Pressure Calibrators, Controllers and Instruments. Druck (now part of GE) has become a name synonymous with precision pressure measurement and calibration. After moving to the USA, Neil founded Advanced Bitnology, a software, firmware and product development consulting business and has helped launch many commercially successful products including Swiss Army Startech Altimeter Watches, Robotic ICU beds, Implantable Medical Devices, Control and Image Processing Systems for BD’s Flow Cytometers (biological cell sorters), various Temperature and Environmental Dataloggers, Robotic Material Handlers, TrailTech’s Vapor and Vector ATV computers, Pickering Labs’ Pinnacle HPLC Liquid Chromatography system, Tag-Connect and many other successful products.

Neil was a Hi-Tech Certified Consultant (now incorporated into Microchip’s Design partner program) and specializes in MCU development using various families of MCU including PIC, MSP430, ARM CM3 for ultra-low power applications, Real-Time Systems, C/C++, ARM, Windows, Device Drivers, Communications Protocols, USB, Zigbee, TCP/IP, Floating Point math implementations, and has specialist 4-bit EPSON MCU expertise.

Pre-Registration Tickets ($20)  – on SALE NOW!