As intangible assets near $80 trillion in global value, this series of articles explores the legal, regulatory, and cross-jurisdictional complexities shaping the interaction of IP and finance. In this article, we introduce the concept of IP Finance and the main obstacles to wider adoption.

The second article addresses practical considerations when taking security, approaches to valuation, sector-specific case studies and best practices.

Most of the largest and fastest growing companies in the world now derive their value from IP. A 2025 World Intellectual Property Organization (WIPO) paper estimates the total global value of intellectual property assets at almost $80 trillion in 2025, representing an increase in value of 40% since 2022.

The intellectual property of a business can take many forms: think the research behind the mRNA vaccine, AI chip designs, the data underlying climate models, the algorithms powering ChatGPT, iconic brands like Nike, Chanel and Starbucks, or the latest instalment in the Grand Theft Auto videogame franchise. Investment in such assets grew at a rate three times that of investment in tangible assets between 2008 and 2023, and there is a clear opportunity for using IP portfolios to secure finance.^[1]

What is IP Finance?

In the early stages of a business, equity financing is often the primary funding route, with investors acquiring an ownership stake in the business and taking an active role.  Most of today's tech giants obtained initial equity funding from angel investors, followed by venture capital rounds. As companies scale and become profitable, they typically move toward non-dilutive debt financing to reduce the costs of capital and retain greater control.

IP Finance refers to the use of IP and related intangible assets to secure funding for business growth. Reflecting the spectrum of traditional financing options, IP-backed financing can take several forms: IP assets can be pledged as direct collateral and used as security for loans, serve as an underlying asset to issue securities in capital markets, or be sold in exchange for upfront funding and then licensed back to the IP owner through sale-and-leaseback agreements. More broadly, such assets can be monetised through licensing or royalty streams, or presented as indicators of enterprise value to attract investors and lenders. As the global economy becomes increasingly knowledge-driven, more businesses are exploring innovative ways to leverage their intangible assets for capital.

The limited availability of IP Finance has been identified as a significant contributing factor to the 'funding gap' encountered by many UK and European growth companies when transitioning from equity to non-dilutive funding.^[2] This is despite evidence that borrowers with registered IP rights have demonstrated significantly lower default and loss rates than companies of comparable size and maturity that had no registered IP.^[3]

The benefits of IP rights

IP can clearly add very significant value to a company. Before looking at the obstacles to the adoption of IP Finance, we first consider how IP assets create value for a business:

• Scalability and high margins. Once the costs of IP creation, development or acquisition have already been expended, the variable cost of creating additional units of digital goods (e.g. software, music downloads or movie streams) may be negligible. Similarly, by leveraging IP through licensing or franchising to third parties, an IP owner can unlock scalable royalty income streams at close to zero marginal cost. Profit margins for many types of IP asset can therefore be very high.
• Potential for monopoly profits. In IP-rich sectors such as biotech and healthcare, regulatory and technical barriers to entry can combine with IP to make it virtually impossible to work around IP protection and enter the market until patent expiry. Consequently, an approved pharmaceutical product can produce a robust and predictable revenue stream, and numerous pharmaceutical royalty financing approaches have arisen in the market.
• Market positioning and price premium. On a similar theme, an established brand creates an entry barrier that secures a market niche and, by extension, a unique and loyal customer base. Branded products command a measurable price premium as compared to white-label products or those of 'inferior' brands, and the IP assets that protect a brand are often readily separable from the underlying business.  
• Hedging and diversification. Research has found that, within the context of broader portfolios, the performance of IP assets is largely uncorrelated with that of most financial assets, and real estate assets in particular. This means that systemic shocks to  the financial system may not affect IP assets, which can serve as a hedge against the risk of other investments. In turn, IP-rich businesses tend to be more resilient through market cycles.^[4]

Obstacles to wider adoption of IP Finance

The two biggest difficulties are the valuation of individual IP assets and the regulatory treatment of loans secured against IP.

The valuation conundrum

One of the biggest challenges in IP Finance is valuation. Most IP assets are by their nature unique, making valuation uncertain and subjective. The broad and heterogeneous nature of intangibles and the legal protection afforded to them, which include not only registered rights such as patents and trade marks, but also unregistered forms of IP like copyright protection, unregistered trade marks or designs, trade secrets, and confidential business information, makes it impossible to apply a 'one size fits all' valuation methodology. The subject matter of the different IP rights is very variable, encompassing a broad and diverse range of assets, such as pharmaceuticals, works of art, songs, source code, raw data, know-how, brands and logos.

IP assets also typically lack reliable market comparables, unlike residential real estate where valuers can rely on recent sales of similar properties with a high degree of confidence. Further, depending on the nature of the technology and the level of expertise required to utilise it, a given item of IP may be highly valuable to a very small number of specialist companies, but virtually worthless in the hands of anyone else.

Outside of certain discrete types of IP, there is a lack of a standardised and commonly accepted methodology. Further, as with other asset classes, intangible asset valuation involves assigning a value at a specific point in time under defined conditions. However, the unpredictable performance of IP assets – particularly at the beginning of their lifespan adds complexity. For example, a pharmaceutical patent family might become a blockbuster following regulatory approval or prove worthless if the underlying product fails clinical trials. Similarly, a new movie might initially fail in theatres but become a cult classic on streaming platforms, and consumer goods brands fall in and out of favour. Effective valuation of new or immature intangibles must account for both potential upside and the downside risks.

Thankfully, new valuation providers have recently entered the market and have partnered with major banks, providing support to the wider adoption of IP Finance - please see the second article in this series for more details.

IP assets that generate established royalty streams are easier to value. For example, a royalty stream from a classic album by a legacy musical act can provide a readily predictable income, permitting the application of more traditional valuation metrics based on cashflows and profits. It is in these fields that there is greater alignment on valuation, and more standardised approaches to portfolio valuation.

Accounting treatment, regulatory capital and risk weighting

Many current valuation practices rely on accounting standards such as IAS 38, which covers most intangible assets other than financial instruments and certain categories of intangible unrelated to IP. As a result, only certain intangible assets - commonly those with tangible characteristics - are reflected on company balance sheets. These include intangibles acquired alongside physical assets or those that generate consistent revenue streams, such as royalties.

However, many other valuable intangibles, like the fruits of internal research, internally developed software and self-generated brands are commonly not represented on balance sheets, despite often being among a company’s most critical assets. Valuation is further complicated by the blurred lines between intangible assets and other value-adding elements, such as employee know-how, regulatory frameworks, or supply chains, which make it difficult to isolate and quantify the standalone value of IP separate from the wider business.

Further, for regulatory capital purposes, loans secured on IP are typically treated the same way as unsecured loans. In the EU, the Capital Requirements Regulation does not apply preferential risk weights to loans secured on IP for regulatory capital purposes, in contrast to qualifying loans secured on residential or commercial property, which do attract preferential risk weightings.

Article 2 preview

The next article in this series will look at the practicalities of taking security, approaches to valuation based on a lending case study, examples from the music and pharmaceutical industries, and practical takeaways.

^[1] WIPO and LUISS Business School Global INTAN-Invest Database (June 2024).
^[2] UK IPO, Banking on IP? The role of intellectual property and intangible assets in facilitating business finance (2013).
^[3] British Business Bank, Using IP to access growth funding (October 2018), pp. 14-15.
^[4] M. Cakir at WIPO's 'IP Finance Dialogue: The Value of Intangible Assets' (13 May 2025).