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In principle, the IAB is a very close-to-market project because the used methodologies of each of the partners in the project are approved under real industrial conditions. The result of the project will boost the financing of innovative SMEs over Europe, generating jobs, growth and prosperity.

Intellectual Capital

Do not underestimate what can be learned about accounting in this discussion paper on IC.

In this context, intellectual assets (IA) based on the companies intellectual capital, has two attractive features that may help firms to unlock new investments or obtain more favourable financing conditions.

  • First, (IA – including IPR, IC and IP) help to reveal the quality of the firm’s management to investors and its technological
  • Second, parts of the IA, i.e. IPR as legally protected economic resources and future explicit intellectual capital, can raise the projected profitability of a firm, and be calculated and put on IA balance sheets, by which it can have future value. It is the objective of the IA bank to turn the concept of “guarantee “ from “ who will pay in case of failure “ towards never fails “ based on specific interventions in the SME’s who receive loans from banks, credit unions, VC ‘s, crowd lending companies
Photo: KS

Intellectual Assets

Notwithstanding these options, IA-based finance is under-exploited across Western economies, especially with respect to those young SMEs who need to open new financing channels. To create more efficient use of IA-based finance and intellectual capital, the project proposals aim is to bring the most experienced organizations together in a consortium that is capable of creating an Intellectual Assets Bank.

Intellectual Assets Bank 

The objective of Intellectual Assets Bank (IAB) is to establish a real (intermediate) bank in Europe for guaranteeing loans on existing explicit intangible assets for SMEs and even startups. A second option the IAB envisages is to guarantee equity providers (VC’s, equity funds, credit unions etc.) for parts of the financier’s investments made and also under the condition to develop their intellectual assets in a structured way.

The IAB joint-venture will be started at project end from the consortium participants and funded from potential investors which will be on-boarded after a successful proof of concept under real conditions.

The consortium is strongly interdisciplinary delivering all necessary know-how and infrastructures for a market success of IAB:

  • IG is the multiple award-winning patent valuation specialist, providing services for valuating patents and utility models. It values single patent families or entire corporate portfolios qualitatively and monetarily (including value determination). IG’s general research focus is to develop methods and tools for valuating patents for different valuations scopes like internal assessments, M&A, insolvencies or patent sales. It combines a fully automated rating with a manual rating process where all necessary indicators are considered that are necessary to assign a proper value. In the currently active project under Eurostars3 IG develops the methodology on determining a patent collateral value. IG’s patent valuation methodology has a TRL of
  • AGI (ENTITY IC) is a knowledge provider with a very strong reputation in the field of “Intellectual Capital accounting [IC]” and “Applied Knowledge Management”. ARE has developed a series of intellectual capital measuring, accounting and auditing products, based on market proven IC models, IC methodologies and tools. Based on these methodologies AGI is able to deliver monetary values for intellectual capital assets (present vs. future and tacit versus explicit). AGI’s methodology has a TRL of
  • JRC is a BaFin regulated financial services institute having necessary approvals and licenses to start-up the bank. JRC is familiar with all necessary regulations and supports the consortium in setting up the bank structure and the business processes properly. JRC has further relationships to corporate credit departments of banks and will support the dissemination as AIT will provide the necessary software infrastructure programming interfaces between the different existing software platforms of the partners and selecting additional commercial products (document management, customer relationship management, project management) which will be integrated. AIT has already been involved in a large-scale software development project for a Document Management System at the European Parliament (2016-2017) and developed as well a website (in JEE) that would allow users to record documents along with their rich metadata for the EP, plus a lot of other functionalities.

OECD (2013), „knowledge-based capital, innovation and resource allocation”, in Supporting Investment in Knowledge Capital, Growth and Innovation, OECD Publishing. (http://dx.doi.org/10.1787/9789264193307-5-en)

3 Eurostars – Project E! 11618 CORAPATENTS (http://www.economist.com/node/7068382

The IAB will not compete with existing European funding programs and institutions like provided by the European Investment fund or InnovFin but cooperate with different stakeholders by enhancing the total investment approach. This means that IAB will not only capital guarantees but also consulting services to SMEs in order to increase their intellectual assets or to generate revenues by licensing of the patent portfolio. This hybrid approach is unique in the market and will deliver to the SMEs exactly the support they need beside the monetary assets.

Relation to the work programme

In principle, the IAB is a very close-to-market project because the used methodologies of each of the partners in the project are approved under real industrial conditions. The result of the project will boost the financing of innovative SMEs over Europe, generating jobs, growth and prosperity. The European Innovation Council (EIC) claims to improve the conditions to enable a rapid scale-up of highly innovative enterprises. The objective is to strengthen breakthrough innovations and boost the number of high-growth companies. That’s exactly the goal of the present proposal by giving financial power to high-tech start-ups or SMEs in Europe.

Concept and methodology

The overall concept of IAB is as follows:

Figure 1: Concept of IAB

The IAB will be installed as a result of this proposed project, where the market proof has been accomplished and an operation structure is available. JRC will give the legal basis to IAB with all necessary licenses and regulations for banking operations in EU. Further JRC will provide the business models for the regulations and esp. necessary documentation and a detailed risk assessment for every single transaction and the overall portfolio risk. JRC will as well establish the network in the banking sector to all relevant market players like European Investment Fund, Corporate loan departments of banks, Private Equity and Venture Capital.

Accounting Series – Article No: 36 (Published April 5, 2019)

Accounting Theory – Advanced Part 26

The picture on the top: Michail Petrov

Categories: Accounting, World, Magazine

Photo: KS

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Peter Welch
Peter Welch

GlobalCfo.LLC is an expert at developing entrepreneurs and building 3-5 year business plans and cash flow projections as a prerequisite for accessing financing sources. GlobalCfo.LLC targets accounting standards compliance and theory, sound infrastructure /process mapping and COSO 2013-17/solid internal controls, ERM, and last but not least documentation /Policy and Procedures and other manuals. Additionally, interim CFO services (or Rent-a-CFO by the hour/day) are offered locally or remotely as well as training at all levels and all functions, not just accounting; e.g., management and leadership skills. Pre/Post-M&A is also offered.

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