Who benefits from Alternative Financing of Brands & IPs?

 

Investments in Brands and IP is benefiting all involved stakeholders but also provides significant impact to the Macro-Economy and the society and is therefore a contributor to the UN Sustainable Development Goals (SDG).



Background

(c) Fotocredit Katharina Schiffl
(c) Fotocredit Katharina Schiffl

Dr. Gerhard Hrebicek, MBA

Founder

Investing in a Brand is not just a simple marketing effort, it is rather a 360 degree effort of the entire organisation and analysing the community, partners, market, financials, quality/service and innovation, products and legal protection (as outlined in the ISO 20671 framework). It requires therefore also a “healthy” operation to achieve its goals and not only capital but also know-how is required to be successful.

 

Most of the SME and Midcap companies, which are often family-owned, have spent their cash reserve to stay in business during the recent financial crisis. To receive bank loans for such investments, without sufficient collateral, remains a challenge, especially if the investments are not solely fixed asset driven. Often the necessary brand and operational development know-how is not sufficiently available in SME and Midcap companies.

Specialized alternative financing sources can provide capital and know-how to support companies on their journey to growth and success. These Funds don’t have just the financial know how but also experts in operations, brand developments and a deep understanding of markets and consumers.



Brands & IPs as Collateral for Financing - Asset Based Lending

Overcoming the barriers to lending against IP assets is attractive at a national, European and global level.

 

Equity investors typically invest into companies, but not into IP assets as such. The equity finance community considers the importance of IP when financing companies, however, the actual value of IP assets per se is rarely considered important. IP is usually evaluated but not formally valued in the regular banking, venture capital or private equity sectors. The general consensus amongst those interviewed is that IP is too risky to be used as collateral for traditional loans. However, it must be noted that cases of intangible asset-based lending (IABL) have occurred in certain circumstances. Combined asset-based lending has been achieved whereby a bank provides a loan to a pension fund against tangible assets and the pension fund then provides a sale and lease-back arrangement against intangible assets. IABL from pension funds (on a sale and lease back arrangement) rather than banks, provides a route for SMEs to obtain loans that is gaining increasing attention.

 

One reason given for this uptake in IABL between a company and pension funds is the growing number of SMEs who have difficulties in securing bank loans.

It is usually unclear whether IP will generate benefits in the future. As a consequence, an important part of internally generated IP is not recognised in the balance sheet of an enterprise, meaning that potential investors are not receiving some relevant information about the company.

 

 

The filing of a “management report” together with the annual report, giving detailed information about IP value, seems to be a useful vehicle to improve publicly available information on intangibles. 



Benefits for Brand Companies

It is very difficult for SME and Midcap companies to receive traditional bank financing, especially if the investments are not solely fixed asset driven. Alternative financing provides Equity, operational Know-How and Brand Tools could provide through Brand Valuations and correct structuring a collateral and strengthen the balance sheet.

 

To grow the Brand on a national, regional and international level, the company does not just need capitcal, but also know-how. Specialized Equity Funds can provide that and are aligned. Additionally, high cost for external consultants could be avoided.

 

Investing in Brands will increase the enterprise value as the Brand value has a significant Impact.


Benefits for Macro-economy

Several studies confirm that companies with strong brands create macro-economic benefits such as higher innovation and investments. It will also create more jobs and international and qualified employment and is encouraging exports, as it is easy to enter new markets with a strong Brand. Products are not solely driven by price but rather quality and service and create better margins. Brand companies also attract other companies, service providers and suppliers and employees.

 

Brand investments can accelerate existing country and regional goals and such investments can be used as a synergy or supplement for other incentives such as guarantees and grants. Studies show that Brands are more resilient to crisis and its investments support the transition to a knowledge and digital based economy.

 

Through the -Standard ISO 20671 and the ISO 20671 Brand Certification Program it is possible to measure the success and progress and provide a transparent tool.

 

Brand Investments could be a part of a national growth strategy through a Fund or Clusters and solve regional issues or challenging industries and could therefore be seen as a “problem solver”.


SDGs

The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, provides a shared blueprint for peace and prosperity for people and the planet, now and into the future. At its heart are the 17 Sustainable Development Goals (SDGs), which are an urgent call for action by all countries - developed and developing - in a global partnership. They recognize that ending poverty and other deprivations must go hand-in-hand with strategies that improve health and education, reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our oceans and forests.

 

Certainly, Alternative Financing brand Funds can contribute to many of the SDGs goals, and by applying the Principles of Responsible Investing (PRI) and embed it in the entire investment process, good results will be achieved. Brand Investments can reduce Poverty and provide for decent work conditions and economic growth and support Innovation and will do that by providing Gender Equality and reduce inequality within a country or region and all while tackling climate change and working to preserve nature.