MSMEs have played an essential role in providing employment opportunities and are the second largest employment-generating sector after agriculture. The sector contributes around 33% of the country’s total GDP and is projected to contribute worth $1 trillion to India’s total exports by 2028.
In an era where innovation and creativity are the driving forces of economic growth, MSMEs have emerged as the unsung heroes of entrepreneurship. These nimble businesses are often brimming with intellectual property (IP) assets, a treasure trove of intangible value that can be harnessed to secure crucial funding. However, many MSMEs are unaware of the significant opportunities that lie in valuing their IP assets to boost funding.
Recently, much awareness of the significance of intellectual property (IP) has permeated micro, small, and medium enterprises (MSMEs) as well as startups in India and to derive financial advantage of the IP assets, the Department of Promotion of Industry and Internal Trade (DPIIT) is working towards the establishment of a comprehensive IP valuation system. This strategic endeavour aims to facilitate IP financing and create novel avenues for raising capital. It is in line with the objective of the National Intellectual Property Rights (IPR) Policy, which aimed to facilitate the valuation of IP rights for recognizing them as valuable intangible assets. To achieve this objective, appropriate rules and methodologies need to be employed to assess their worth accurately. The IPR policy also envisions the creation of a comprehensive legislative, administrative, and market framework which is conducive to the utilization of IP assets as collateral for various financial purposes. It is well known that IP financing in India is still in the nascent stage. Therefore, by creating well-defined rules for IP valuation, India can unleash the full potential of its IP assets, contributing significantly to economic growth and innovation within the country.
Intellectual property comprises patents, trademarks, copyrights, and trade secrets. These assets, often overshadowed by tangible ones, are the essence of innovation and growth in the business world. Therefore, IP valuation becomes the key to unlocking the latent potential of these intangible assets. The benefits for MSMEs in embracing IP valuation are profound, like:
– IP valuation provides a credible metric to showcase the worth of intangible assets, making an enterprise a magnet for investors seeking long-term growth prospects.- When seeking loans from financial institutions, IP can serve as collateral. A robust IP valuation eases the process, helping banks assess risks and determine loan amounts more accurately. – With the knowledge of IP value, MSMEs can make more informed strategic decisions. This includes decisions related to licensing, selling, or leveraging IP for market expansion.
– In negotiations with potential partners or buyers, a well-documented IP valuation bolsters the negotiating position facilitating the enterprise get the best deal possible.
– IP financing window would facilitate banks and financial institutions to opt for recapitalization of the enterprise and facilitate debt restructuring in case of financial stress of the enterprise.
Valuation of IP Intangibles and their funding
The valuation of IP Intangible Assets cannot be done uniformly as it varies based on the type of IP and the particular industry. The valuation has to be based on the potential of their commercialization and after carrying out market research by analysing the trends, competitor activity and potential licensing avenues to gauge the market demand. To make the most of IP valuation for funding, MSMEs must be well-versed in the IP valuation rules and regulations. Hence the initiative being taken by the Government to frame IP valuation rules is welcome as it would benefit the IP owners to monetise their intangible assets and avail funding from Banks and other lenders. MSMEs can also benefit by way of tax incentives and knowing the IP values can help taking full advantage of these tax benefits. In addition, the financing banks /financial institutions may offer IP-based financing, allowing IP assets as collateral for loans for which the valuation of IP assets would be a pre requisite.
Bottomline
It would be difficult for India to fulfil its ambition of becoming a self-reliant $5 trillion economy without the contribution of the MSME sector. As the world of MSMEs is teeming with untapped potential, much of which is locked within their intellectual property assets. As the guardians of innovation, these enterprises must recognize that their creative prowess extends beyond product development; it encompasses the strategic assessment of their IP’s value. By adhering to a structured valuation process and navigating the web of rules and regulations, MSMEs can harness the full potential of their intellectual property assets to secure the funding they need to flourish in today’s fiercely competitive business landscape. It’s time for MSMEs to embrace IP valuation rules as their gateway to financial empowerment and sustainable growth.
The author is President at PHDCCI.
