Intro » Innovation valuation procedure in Polish conditions

I would like to point out that in the Polish economic area, the experience of domestic inventors, innovators with regard to the links between the world of technology and the world of economics is for the most part rather fragmented. There are many enthusiasts of innovative technical solutions and the level of merit of these solutions in fact often remains high. However, the lack of sufficiently long-term free market traditions means that very many of them [and, in my opinion, the vast majority] are unable to parse the fruits of their labour in a way that is adequate to the scale of risk of estimating the so-called 'market' value of these innovations. This is by no means their fault, it is rather the effects of this lack of tradition and thus of relevant experience and effective procedures of the whole evaluation process. I therefore consider that the following proposed procedure for dealing with such dilemmas may be helpful and useful, in particular, to such persons who ask questions about such valuations.

Before talking about the details of the process, it is worth emphasising a principled principle of dealing with innovative solutions - there is no certain, or in other words: rational - method of valuing inventions. Instead, there is only one rational way to diversify the high risk for both parties to the transaction [licensor (LR) and licensee {LE)] - LICENSING. In other words, it should not be based on promises, but on facts. Under licensing, LE only accounts to LR for the real effects of using the Technology, regardless of any initial predictive assumptions. That is, for example, through a certain proportion of the actual revenue generated from the business based on the Technology.

In contrast, LR's risk may be diversified so that the royalties include a variable portion, depending on LE's level of revenue or income, and a fixed, lump sum portion [the so-called MLF - Minimum Licence Fee], appropriately low in relation to potential variable fees, but independent of LE's financial performance. This makes particular sense if the sum of the MLF fees covers or appropriately exceeds the cost value of the Technology.

Proposed approach to the topic and scope of the consultancy service:

Characteristics of the specifics of the innovative technology/inventor's solution [hereinafter: Technology]. Including determination of the formal-legal status of the Technology [generally speaking - it may be a patent, i.e. an invention already patented or an invention not yet having patent protection or, for formal reasons, unable to obtain it, i.e. an area of knowledge - most often technical, technological - formally defined in the Accounting Act as know-how].
Analysis of the possibility of determining/estimating the costs incurred by the Creator [or better the Licensor, LR] of the inventive solution. These costs are usually very relevant to the specifics of estimating the value of inventions, as they define at least one level of value [by default the lowest], i.e. here the cost value. For inventions, moreover, this is the only criterion that can be regarded as "hard", documented, rather than speculative, i.e. in principle evaluative.
In the case where there is an identified potential recipient/buyer (Investor, or better, Licensee, LE) for the Technology, then:
- it becomes reasonable to conduct a tripartite consultation: Creator - Investor - Consultant [author of the quote];
- these are aimed at determining the possibility of completing a procedure that would lead to an estimate of the principles of licensing the Technology to the Investor;
- regardless of the Investor's preferences [who potentially may not want to license the Technology, but would prefer to acquire property rights to the know-how and e.g. file it for patenting himself], the procedure of determining the principles of the licensing model is the most rational and thus the preferred method of invention valuation [it should be emphasised that the determination of the analytical scheme of Technology licensing does not force implementation of this scheme after all, it may serve only for the purpose of more rational Technology valuation];
- licensing is the only approach that makes it possible to diversify the risks of the parties to the transaction.
A standard rule based on the aforementioned criteria indicates that:
- The Investor/Licensee should submit a vision of the management of the Technology after it is taken over for use [business plan] - it would be incomprehensible, to say the least, if the Creator were not interested in the prospects of the use of his Technology by foreign entities and, therefore, in a possibly realistic assessment of how much he can earn thanks to it;
- the business plan should be subject to the Creator's approval [possible corrections and agreements] - it is obvious that this kind of document should not remain outside the Creator's control [the Creator should have the right to assess the scale of realism of the assumed assumptions, after all the initial parameters of the licence contract depend on them];
- on the basis of the aforementioned premises the Consultant carries out the valuation.
Under the above option, the Consultant will develop:
- an analysis of the economic [industry] environment of the Technology, with determination of average economic and financial indicators for the segment in the target market [e.g. Europe];
- economic-financial analysis of the Investor [on the basis of its previous financial results, if it is a commercial company or it provides relevant information and financial statements from the last few years, preferably 4-5 years];
- a revised version of the business plan for the implementation and management of the Technology, based on mutual consultation with the parties to the transaction;
- an analysis of the licensing scheme for the Technology in terms of exclusive and/or non-exclusive licensing;
- draft licensing contract, including formal and analytical aspects [in cooperation with legal advisor];
- valuation of the Technology on the basis of a cost, revenue, licence approach, with determination of the negotiation area of its fair value.
Note: This approach takes into account greater pragmatism, as it includes the Investor's real capabilities, which may differ significantly from industry averages.
If the above is not possible due to the lack of willingness of the Investor or other barriers, the Consultant may carry out the valuation solely on the basis of information obtained from and in collaboration with the Creator. Under this option, the Consultant will develop:
- an analysis of the economic [industry] environment of the Technology, with the establishment of average economic and financial indicators for the segment in Europe;
- economic-financial analysis of the Investor [based on its past financial results, assuming that the National Court Register number of the Investor's company is known, if it is a commercial company];
- determination of the minimum sales threshold of the potential exclusive licensee, at which the economic viability of the transaction would meet the requirements of the Creator;
- an analysis of the licensing scheme for the Technology in terms of exclusive and/or non-exclusive licensing - taking into account the above two points;
- draft licensing contract, including formal and analytical aspects [in cooperation with legal advisor];
- valuation of the Technology on the basis of a cost, income, licence approach, with determination of the negotiation field of its fair value.
Note that this approach takes into account less pragmatism, as it involves the assessment of the Investor's hypothetical capabilities only on the basis of average industry indicators (and these may be different from the reality of the Investor's business).
Anticipated costs for the execution of the order:
a) according to the option described in pt. 5: price X in PLN net;
b) according to the option described in pt. 6: price Y in PLN net, with Y < X.
Deadline for completion:
a) according to the option described in pt. 5: e.g. up to 15 calendar days;
b) according to the option described in pt. 6: e.g. up to 10 calendar days.
Consultation modalities:
a) By default, consultations are conducted in an online format, depending on the demand of the parties.
b) Face-to-face consultations with a requirement to travel away from the Consultant's premises [more than 50 km] are possible, with the definition of such a requirement and additional costs depending on the circumstances.
c) Alternatively, the Consultant may conduct a detailed presentation of described licensing/valuation concepts prior to the commissioned analytical process, including:
- in the form of an online presentation [estimated time: 1.5-2 hours];
- in the form of a face-to-face presentation at a venue agreed by the parties to the transaction [estimated time: 1.5-2 hours].
The costs of the above-mentioned forms of presentation will be determined upon request. In each case, these costs may be partly or fully settled within the stated costs of the subsequently commissioned valuation procedure.
Please note that a version with a presentation prior to the valuation is justified for those enquirers who require a more detailed explanation of the essence of the analytical diagrams than has been provided above. This is perfectly understandable. Thus, this is an opportunity to make a more informed decision about the implementation of the valuation process once the enquirer is aware of the procedural dependencies and the area of affordability of the proposed procedure to their tender position.

Innovation valuation procedure in Polish conditions

My offer

Do you have questions about services? Please, fill out the form!

e-mail address
Message content
Phone number