I run a software company. I have for over 20 years. Once in awhile, someone will ask me what my “net worth” is. I have to respond, “It depends on whether you value intellectual property”.
Intellectual property, IP, would be things my software company owns or has rights to such as Galactic Civilizations or Start8 or our websites and our patents and trademarks. How much are they worth? It depends.
There are a number of ways of valuing intellectual property. If the IP generates revenue, then one rule of thumb is to take the revenue of the past two years and add a projection of the next year and use that as a fairly reasonable number. If the IP is a patent or a trademark, then things are a little trickier and you’ll likely only find out the real value of those when you go to sell or license it.
If you’re dealing with a bank, your IP is worth basically nothing. It can be very frustrating. This is why in the technology world, venture capitalist rule. In other businesses, you can go to a bank and get a loan. That is a lot harder in technology.
In my case, what I did was slowly, over time, take profits and acquire physical things that I could use as collateral. For example:
That’s the Stardock building. We own it. 25,000 square feet of glorious nerdom. Owning your own building is generally not considered a good business move. You’re better off leasing most of the time. But I needed to have collateral during our earlier years. I’ve done much the same in my personal life with slowly acquiring various houses just so I have physical assets to evaluate.
But like I said, most of my wealth is in IP. That IP generates many millions of dollars each year but the bank counts that IP at $0 because (and you can’t blame them) what would they do with that IP?
When Atari went bankrupt, we went to the auction to acquire some of its IP. That’s how we picked up Star Control. While there, Atari’s creditors earned millions of dollars selling off Atari IP including Battlezone, Master of Orion and countless other assets that a bank would have little idea what to do with.
One mistake entrepreneurs make is to value themselves based purely on their dreams of their IPs potential. Nobody cares about its potential. Your IP is worth basically nothing until you can prove it will generate income (or if you can get a patent on it).
If you have any questions on trying to evaluate your net worth on the basis of IP, comment below.