IP and Technology Valuation and Pricing
TCI frequently handles technology assessment and valuation projects. One of the most critical and complex issues negotiated between a potential licensee and licensor is the price of the technology to be acquired. This issue becomes increasingly difficult when the technologies under consideration are early-stage and largely unproved. Both parties need to develop a pricing mechanism that will establish a fair rate of return on the value or the intellectual property investment. The ultimate price paid for the technology is dependent on a number of factors including:
- Nature of the technology
- Stage of development
- Status of competing technologies
- Scope (patent vs. know-how)
- Strength of the patent or know-how
- Relative bargaining power of the two parties
Direct monetary compensation for technology may take many forms, generally consisting of one or a combination of:
- Lump-sum payments
- Royalties
- Fees
To determine the appropriate total cost and mix of compensation methods for a particular technology, an assessment of the value of the technology to the licensee compared with the costs of acquisition needs to be made. Estimates of the potential licensee’s costs and revenues are developed to produce a cash flow model that will give the likely returns to the licensee. Once this assessment is developed, the licensor can assess whether his return criteria are met. The cash flow model can be shared by the licensee and licensor to reach an understanding of the criteria used to determine the cost of the technology.
Technology Catalysts has assisted companies in pricing and valuing their technology. This experience has focused on the advanced material, chemical, medical and pharmaceutical industries.
