In the article, Graham warns that the Facebook disaster means extended waits for all companies thinking of going public until the market is attractive to IPOs again.
So what about the mezzanine-stage tech company with products, revenues, and a need for capital to grow? Consider the new concept developed by Carthage Intellectual Capital Management: a sale/license-back of its patent portfolio. Monetize your patents by selling them for needed capital and, in return for an annual fee, get a license back to use them just as before.
The concept is similar to a sale/leaseback of real estate, equipment, or software. The cost of capital is less than equity and the capital more available with less onerous terms than with a bank loan. There are tax advantages for the company–use the NOL that’s probably on your balance sheet and pay fully tax expensed license fees. And, should the company be willing, there is potential upside to company and investor through out-licensing in non-competitive fields of use of geographical area.
Jamie Dimon and Mark Zuckerberg have both made a lot of news recently. Dimon is taking heat for presiding over a series of bad hedges that cost JP Morgan US $5 Billion of its capital. Zuckerberg’s fame and infamy is the Facebook IPO which created US $100 Billion in new stock equity and then proceeded to lose US $16 Billion of it in a week’s worth of public trading. There is a difference however. Facebook (FB trading symbol) is still up around US $85 Billion in new and liquid financial equity. JP Morgan is still down around $US 5 billion in capital losses while some hedging counter parties are up $US 5 Billion for a zero sum change in global equity. This is the difference between derivative finance and origination finance. The former is a zero sum game; the latter is the creation of new capital from un-capitalized assets. The latter is what economies need to grow their way to recovery. So where are those un-capitalized assets yearning to be liquid?
Don’t expect it to be another Facebook any time soon. Because of the poor trading performance of FB social media stocks are taking a real hit and those waiting in the IPO queue will likely have to wait longer- perhaps much longer. But there are other assets that are ready to become liquid now and they are called intellectual properties or IP for short. The IP I am referring to are the millions of patents, trademarks and copyrights that have already been made by businesses, inventors and entrepreneurs with cash invested in the past. Many of these assets have added to the cash spent to create them by the fact that they are helping enterprises make new revenues or by saving the costs to make recurring sales. What we are doing at Carthage Intellectual Capital Management is helping IP owners to originate the cash value of their IP through valuation, monetization and management of IP. The core of our system is the sale license-back of IP. In our world, original thinking is the origin of new capital.