Last week I briefly discussed the contentious issue of who should own the IP in a new venture.

One reader made the offline comment that I seemed to saying that IP had no value and people really should not worry about it too much. They asked that I justify this position.

What I am saying is that like any property, IP has no intrinsic value. The only value that it has is that which other participants in the market assign to it. If you have ever tried to sell your car or house for what you think it is worth but then received much lower offers you will have an emotional understanding of this point.

The problem with undeveloped IP is that there is not really a market for it so it is very difficult for either sellers (i.e software developers) or purchasers (i.e. distributors, joint ventures etc) to establish a market value.

The goal of IP commercialisation is to create a product with an associated cashflow that does have a market value. The starting point for valuing the IP should be that cashflow; Consider a pharmaceutical company that creates a new drug. They will sell it for the greatest amount they can in the market they have. Whether the drug cost $1 or $bn in R&D makes no difference to what a competitive market will pay (Wikipedia Sunk Costs for this and other relevant discussions.)

So I say again. If you are an IP owner, unless you can get several potential purchasers bidding for your IP don’t worry too much about its value. Concentrate on getting it into a product and getting that product sold. It is better to have a small share of product that generates cash than a 100% of IP that generates nothing.

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