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Intellectual Capital Valuation LLC

Summary: 

If you're so damn good at valuing intellectual capital+, why not sell this as a professional service to today’s funding organizations?

Investors don’t understand the intricacies of the insurance industry and yet invest quite readily into insurance firms despite their ignorance. You’re an insurance industry for intellectual capital+ (or perhaps a success assurance+ industry). Give up on this funding agency+ idea and concentrate on selling valuation services for intellectual capital.

We’re really good at valuation of intellectual capital. That’s what drives the success of our funding agency.

We’re really good at success assurance for our investments. We take intellectual capital and make it the best it can be.

We can inexpensively give you a true and honest valuation, but understand that value may be zero. If the investment isn’t structured for success there is no reason to believe it will be more successful than today’s investments – a valuation of zero becomes both easy to predict and to achieve. It’s hard to see why anyone would want to pay for an asset valuation showing this much honesty.

Premium valuation takes much more. We must first change the structure of the funding client so they are better able to support success in the investments they manage. We don’t meddle into investments, forcing them to hang the window dressings of success. We reorganize today’s funding clients so they can provide services to their investments similar to those we have discussed for our funding agency. For example, we put in place an independent judiciary with jurisdiction over major decisions affecting investments, and make sure these decisions are not tainted by client managers practicing ‘earnings management’. Premium Valuation combines valuation services packaged with success assurance services.1

The valuation of intellectual capital must reside in the minds of investors. They must believe in our calculations. You may fully believe in our valuation methodology. It’s the buyers and sellers of these appraised investments who need to believe. You can tout our LLC certificate-of-approval. It may buy you some credibility. But investors are skeptical of these certificates – too often they are window dressing. Instead you as the seller of investments must work hard to sell your clients on the fidelity of our valuations services.

Valuations are not point-in-time. Investors need valuations any time they buy or sell. Success assurance and valuation services must be purchased for an extended period of time, ideally covering from the first investor buy to the last investor sell. We only sell valuation services covering bundles of investments. Every investment within the bundle must be covered. Valuation becomes more reliable as the bundle reaches optimal size (e.g., 20-30 investments). Investors require valuations for a bundle of investments trended across an extended period of time.

Full services from the LLC include 1) bundling together of intellectual capital assets, 2) placing those assets within a funding structure to make them be all they can be, and 3) tagging the bundle with a premium price. Full services include judicial services. Full services must be purchased for a very long period and for all investments within the asset bundle. Not included are brokerage and insurance services2 (which presumably could also be provided as part of the LLC). All together these come close to the definition of a full funding agency.

It’s a package deal. The way you do any LLC service affects the valuation of investments. Do brokerage poorly and valuation becomes easy: zero. Investors choose not to believe the valuations and investments lose value, a self-fulfilling prophecy. Do insurance poorly and investors become uneasy. They demand outrageous returns on their investments, reducing effectiveness in our success assurance activities, and leading to a general decline in valuations.3 Services are reinforcing and depend on detailed levels of coordination in order to be effective.

Integrated service offerings are difficult (but not impossible) to provide as an outside vendor. Given the scope of services needed it seems to make more sense to retain these in-house. For example, success assurance is expensive. You must commit to investing upward to 20% of all winnings, up-front, into success assurance. That’s 20% of winnings you will be handing over to the outside vendor. Despite these hurdles we theoretically could sell these services as an outside vendor to current investment brokers (e.g., brokerage houses, investment bankers). It does seem though to be quite a difficult selling proposition.


Editor's Picks for September, 2011

  • 1. This fee doesn’t fit within today’s venture capital payment schedules. But the venture capital industry isn’t doing too well.
  • 2. Success assurance is not insurance. We don’t cover losses should the investment not pan out. We instead assure greater success. Each individual investment does much better, but this does not protect against individual loss or systemic risks, risks that drag down all investments despite their steady advancement+. For that you need hazard insurance protection, another service offering.
  • 3. It’s a roundabout argument. Investors demand outrageous returns, reducing the sense of wealth creation in the minds of owners of intellectual property+, leading to reduced effectiveness in the success assurance efforts.
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Reba Tull
Offline
Joined: 03/30/2011
Go for the more practical LLC approach!

I agree with the premise of the overview. Setting up a separate LLC dedicated to valuation is conceptually easier and perhaps a good segue into your larger dreams. Low valuations by an external LLC is a great motivation for investment houses to get their act together on all their other activities needed to improve productivity in their investments. This will allow the outside service provider to increase the variety of its service offerings (and increase profits). We all know these types of consulting services can be very lucratively priced. Eventually everyone will understand the outside service provider is the main driver of success for the investment house, and it will either be acquired or will take over the investment house