What is technology valuation?
- Valuation refers to a method and procedure by which the monetary value of intangible assets or intellectual property(IP) such as patent or copyright is calculated. Calculation of the economic benefits that a certain IP can generate in the market is the main object of the valuation. It is important, among other things, to determine the fair market value of the IP under an arm's length transaction.
- In practice, there are three generally-accepted approaches to valuation: Cost Approach, Market Approach, and Income Approach.
- Cost Approach is based upon the concept of replacement cost as an indicator of value and the notion that an investor would pay no more for an asset than what it would cost to replace the asset with one of equal utility.
- Market Approach attempts to value an IP by examining observable market values for similar assets.
- Income Approach attempts to value an IP by estimating the present value of the future economic benefit it is expected to produce.
- In general, cost approach is not widely used because it does not reflect the future economic value of the valued IP. The market approach also has limitation since it is difficult to find a comparable IP transaction in the market. Thus, the income approach is generally employed when undertaking the IP valuation. KOTEC has also chosen to apply the income approach in its technology valuation practice.