Valuing Fintech Intellectual Property

This week, I attended the 7th iteration of Singapore Intellectual Property (“IP”) Week at Marina Bay Sands and spoke as part of a panel on “Monetising Intangible Assets for Exponential Growth“. Overall, the conference was quite eye-opening as the experience of it was very different from my initial expectations. In particular, the event allowed tryb to access many senior decision makers, two of whom were my fellow panelists – Satvinder Singh (Assistant CEO, Enterprise Singapore) and Tan Shau En (Assistant Chief Executive, Intellectual Property Office of Singapore [“IPOS”]).

There are a number of follow up actions across the board as tryb continues to grow its ecosystem. IP Week has introduced us to new channels for increased deal flow, partners who want to grow our portfolio companies with us, and supportive government agencies who are interested in anchoring ASEAN fintech in Singapore with the help of tryb.

On my thoughts? First, a couple of high-level observations:

  1. The scale was impressive – 3,500 participants attending multiple plenary and panel sessions, including the topmost officials of the IP agencies of the world’s largest economies. There was also an “IP Marketplace” event, which saw over 20 companies and start-ups showcase their businesses and, more interestingly, operational processes which lead to the creation of new IP and its monetisation.
  2. There was a very strong and sustained interest in what tryb is building with our fintech focused investment and value creation approach. This does make sense though, as individuals who spend their careers focused on evaluating, valuing and monetising IP are likely to be drawn to an approach that is built upon deep domain expertise.

Beyond this though, topics were discussed across the forums, panels and plenaries that set me thinking about how tryb evaluates the fintech opportunities we see. One shared observation was that the primary factor driving IP monetisation is people. EverEdge, the global IP consultancy that works with IPOS, shared a slide showing that – based on their research – successful IP commercialisation was in most of the deals that they had advised attributed to strong execution by a good team.

So – if tryb invests in good teams, as identified through our extensive investment process – what are the commercial intangible assets that a fintech firm operating at the boundaries of finance and technology can harness?  And to take this one step further, how does the way tryb assesses performance through the lens of key operating metrics and KPIs tie in to a subjective evaluation of IP?

Here’s a framework I gleaned from a (very patient) IP valuer at IPOS – supplemented by some research to get the terminology right:

  1. The ability to raise capital cheaply, a.k.a. low WACC, low cost of funds, cheaper refinancing rates. For banks, this is typically represented by the number of core depositor relationships they have relative to total deposits, as it demonstrates the ability of the bank or savings institution to raise capital from low-cost demand deposit and time deposit accounts (compared to higher cost jumbo CDs or other capital sources). For non-bank institutions, this gets more complex as the evaluation rests on a view of their access to wholesale markets. For some institutions, we would focus in on the structures through which (lending) capital is raised; for others, the number of wholesale relationships and the terms behind each funding ‘line’ is more important.
  2. The ability to earn profits over the life of a customer relationship.  While this category sounds self-explanatory as it can be simplified to “how do they earn revenue and how sticky are the channels”, there is a fair amount of granularity to assess looking through to the product level.
    • Loan servicing relationships.  This intangible asset is typically considered to be the expectedprofit to be earned from servicing a mortgage or other type of loan portfolio over the expected remaining useful life of the current loan portfolio.
    • ‘Renewing’ credit relationships. This intangible asset is typically considered to be the expected profit to be earned from interest, fees, and charges on the expected outstanding balance amounts over the expected remaining useful life of a current credit card or consumer financing relationship.
    • Revolving consumer or commercial finance relationships. This intangible asset is typically considered to be the expected profit to be earned from interest, fees, and charges on both the remaining loan balance and the expected loan renewals over the expected remaining useful life of the recurring credit relationship.
    • Leasing relationships.  This intangible asset is typically considered to be the expected profit to be earned from interest, fees, charges and residual value gains over the remaining terms of the current leases and the remaining terms of any expected lease renewals
  3. Regulatory operating approvals. Generally considered to include the going-concern value (often measured as the license application period opportunity cost) associated with all of the financial institution’s required regulatory licenses or permits.
  4. Computer software. This includes both purchased or proprietary: (a) the account management and core banking stack; and (b) the financing accounting software; and (c) the associated databases that lay the foundation for data storage and management.  Alternatively known as, how much would it cost and how long would it take for someone to recreate this stack to achieve the same economic benefit?
  5. Operating processes, including manuals, systems and procedures. This refers to documentation of “how we do things here” and captures the secret sauce that has to be imparted to every new employee in order to perpetuate and extend their competitive edge.
  6. Service marks and service names. Any brand awareness, name recognition, and customer loyalty associated with the name of the company and with the names of all of the firm’s proprietary products and services.
  7. Trained and assembled workforce. We at tryb are already aware that human capital and talent forms the most valuable part of any high performing fintech.  This category is often quantified as the cost to recruit, hire, and train all of the subject institution’s management, administrative, and account personnel.

Now, with all that out of the way…clearly, not every fintech tryb evaluates will demonstrate every one of these commercial intangible assets. Neither will any specific one of these commercial intangible assets be particularly valuable to a specific fintech.

That said, tryb is particularly suited to evaluating how early and growth stage fintech firms are able to create substantial intangible asset value given our deep sector and domain expertise, and subsequently nurturing them into market leaders.

This is of particular relevance when we think about exits – an institution looking to acquire any one of tryb’s high performing portfolio companies is highly likely to assess the value of these intangibles and how they will generate synergies for their going-concern businesses. Especially if they hope that the acquired tryb fintech will make them more profitable than their peers!

So – how does tryb add value and help portfolio companies create highly valuable commercial intangible IP? That is part of our secret sauce and a story for another time.

This post was written by Veiverne Yuen, Co-Founder of tryb.