How to value intangible assets….a revealing case study.<\/p>\n
You really can put a price on anything\u2026<\/p>\n
I have just finished a call with someone where we really got into the bones of where value exists in a private company and its shares.<\/p>\n
Understanding the difference between a tax framework valuation and an IPEV guidelines valuation is always a good starting point.<\/p>\n
The prudent investor, open market, and willing buyer\/willing seller scenario is very different from the IPEV framework in terms of how you think about valuation.<\/p>\n
However, the really interesting bit comes when you look at the intangible assets in a business (those bits that do not appear in the forecasts or company accounts such as IP or the value of the team).<\/p>\n
With so many businesses these days not being solely holders of tangible assets, the big debate is around intangible assets.<\/p>\n
As you are busy I won\u2019t spend pages explaining how we crack this issue, barring giving you a rather interesting case study.<\/p>\n
Two early twenties entrepreneurs with no previous track record in business have built a software company that has in the last two years gone from \u00a3mil to \u00a315m turnover.<\/p>\n
What\u2019s more, they have a pipeline today worth over \u00a31bn.<\/p>\n
What are those people worth to the business?<\/p>\n
What is their market rate as developers and even as sales people?<\/p>\n
I am guessing a few \u00a3000,000s each were they to speak to a head hunter.\u00a0That is clearly nonsense in this scenario as a way of understanding their value.<\/p>\n
Where the value is, is in the entirety of the package.<\/p>\n
Firstly its about the two of them as a combined unit.<\/p>\n
Functionally there is value in what they do in their jobs day to day (probably replaceable by others \u2013 see comments in the previous paragraph).<\/p>\n
That can be calculated by looking at the market rate for each of the jobs the two do today, but misses the magic of them being a team and what they have proved that they can do \u2013 a classic case of 1+1 does not equal 3 but probably 10!<\/p>\n
That should be impossible to quantify, but it can be done.<\/p>\n
One approach is to work out just how much a global corporate would invest to get to the same opportunity in the same time period.<\/p>\n
We all hear about how much Microsoft and Google are throwing at AI innovation.<\/p>\n
There is no question that grown-ups would invest \u00a3ms in researching, planning and delivering such a real and enormous opportunity.<\/p>\n
So here is a framework for us to understand what these two stars are worth.\u00a0 Happy days.<\/p>\n","protected":false},"excerpt":{"rendered":"
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