By Andre Toh, ASEAN Valuation, Modeling & Economics Leader, Ernst and Young LLP, Singapore
*In the first of a new WIPO report series, WIPO recently partnered with the Intellectual Property Office of Singapore (IPOS) to document the country’s journey towards unlocking IP-backed financing. Mr. Andre Toh, the author of the report, shares the country’s experience in developing a multifaceted ecosystem to help businesses maximize the potential of their IP assets.
The global economy is increasingly driven by innovation and intangible assets (IA). With rapid proliferation across different technology fields, the global value of intangible assets today has risen above USD 65 trillion, according Brand Finance’s 2020 Global Intangible Finance Tracker .
Intellectual property (IP) rights, such as patents, trademarks and copyright, along with data, know-how and branding, are key components of IA. As enterprise value is increasingly founded in IA and IP, the ability of businesses to raise capital from these assets is critical to unlocking business value and driving enterprise growth.
Singapore takes a holistic approach to IP financing
The Government of Singapore has stepped up efforts to support enterprises in proactively protecting, managing and commercializing their IP. To this end, in 2013, the Government launched its IP Hub Master Plan , to position Singapore as a global hub for IP activities. In 2017, in line with Singapore’s broader economic strategy, the IP Hub Master Plan was revised and updated. The updates include the expansion of IP expertise, the enhancement of IP commercialization and financing as well as greater transparency around IP-related market information.
Building on the IP Hub Master plan and its revision, in 2021, the Singapore Government launched the Singapore IP Strategy 2030 (SIPS 2030). It focuses on three key areas. First, it seeks to strengthen Singapore’s position as a global hub for IP activities and transactions; second, it aims to attract and grow innovative enterprises; and third, it strives to develop good jobs and skills in IP.
Singapore starts from a strong position. It has an internationally recognized world-class IP ecosystem that provides a robust legal and regulatory infrastructure to enable enterprises to protect, manage and commercialize their IP. This includes a financial reporting and valuation framework that is aligned with international standards. Singapore is also home to more than 36,000 startups and technology companies, and continues to grow its pool of innovative enterprises. Moreover, Singapore’s IP ecosystem consists of a comprehensive network of IP service providers, including financial institutions and private lenders, valuers, consultants, and lawyers. Public-private partnerships between relevant government agencies and industry stakeholders continue to strengthen the IP ecosystem.
Singapore offers a robust slate of financing options for IP-rich enterprises
IP-rich companies in Singapore primarily pursue funding through equity financing, debt financing and government grants.
Singapore’s business environment enables innovative enterprises to seek and secure equity investment from angel investors and venture capital firms. In 2019, venture investments rose to more than SGD 13.4 billion (approx. USD 9.8 billion), representing a year-on-year increase of 36 percent.
While IP debt financing in Singapore is still at a relatively early stage, in 2014, the Government piloted its IP Financing Scheme (IPFS) to support the cost of IP valuation and to share the risk of potential default on IP-backed loans with participating financial institutions. The pilot has helped to raise awareness of the use of IP as collateral to raise capital.
Other government-backed guarantees or funds, such as the Enterprise Financing Scheme-Venture Debt Programme (EFS-VDP) launched by Enterprise Singapore, is also fueling the growth of innovative and IA-driven enterprises. Loans of SGD 8 million (around USD 5.8 million) per applicant may be raised under this program.
IP financing is a journey
Despite the implementation of these measures, several challenges in relation to IP financing remain. IP financing is a journey and Singapore will continue working with stakeholders, including its international partners to overcome these challenges.
A key challenge lies in the fact that financial institutions still have reservations about using IP as collateral when financing companies. Many financial institutions are relatively unfamiliar with using IP as collateral and lack the in-house capability to value IP. To address this challenge, the Government of Singapore and the Institute of Valuers and Appraisers of Singapore (IVAS), plan to develop a standardized set of IP valuation guidelines that can be recognized internationally. The guidelines will help stakeholders better understand the value of IP and enhance their trust in the way IP is valued. In turn, this would lead to more IP financing activities for innovation-driven businesses.
Financial institutions are also concerned that IP is often viewed as an asset with low liquidity due to the lack of secondary markets. This concern is further amplified by the fact that illiquid IP may face volatility with respect to its value and the ability to dispose of it under distressed situations. To address this concern, the Singapore IP Strategy 2030 will increase IP commercialization opportunities for businesses by facilitating transactions through platforms and connections. In so doing, the aim is to increase the liquidity of IP assets and their attractiveness to capital providers.
Information asymmetry is another challenge for IP financing in Singapore. Typically, crucial IP information is not disclosed during the company’s financial reporting. This impedes a proper assessment of the value contribution of IP as well as the financing process. This situation is a result of gaps in IP management practice among enterprises in Singapore, which lack the awareness and capabilities to manage, protect and extract value from their IP assets. For this reason, the Intellectual Property Office of Singapore (IPOS) and the Accounting and Corporate Regulatory Authority of Singapore (ACRA), are co-chairing an interagency committee, which will work closely with an industry working group to co-develop an IP disclosure framework to help companies better communicate their intangible assets, including IP, to stakeholders, including capital providers. The aim is to encourage more IP financing activities.
The Government of Singapore has launched a range of programs and initiatives to support its vision of strengthening the country as a global hub for activities relating to IP and intangible assets. Recognizing the challenges identified, the Government has come up with a robust holistic approach to establish the necessary enablers, as laid out in SIPS 2030. Under that strategy, the relevant government agencies will work closely with the industry players and international partners to enable better appreciation, disclosure and valuation of IP to help enterprises unlock value from their IP assets.