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Kamoroun
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Joined: May 28th, 2018, 7:19 pm

Valuation Of Intangible Asset - R MODEL

October 8th, 2021, 6:57 am

A venture capital firm has asked me to value a model that we built. This model is designed for use in a life insurance company. Instead of outsouring the model we will instead build our own mode, therefore, saving $2m per annum. The $2m is the amount charged by other companies to license a similar model to us. 

Am I correct in saying that the value is simply the Discounted present value of the $2m per annum?

Any suggestions or papers on how I should view this valuation?
 
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Alan
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Re: Valuation Of Intangible Asset - R MODEL

October 8th, 2021, 1:18 pm

Well, venture capital firms will take whatever you say with a grain of salt. The more standard approach would be to estimate your revenues,  expenses, and net earnings from the model over the next n years, and discount the earnings stream.   
 
Kamoroun
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Re: Valuation Of Intangible Asset - R MODEL

October 8th, 2021, 3:26 pm

I just came across the Relief from Royalty method which talks to the initial method I discussed above:
Relief from royalty is based on deprival value theory and looks at the amount of income
that a company would be “deprived” of, if it did not own the intellectual property in question but
was required to rent it from a third-party instead. The royalty represents the rental charge, which
would be paid to the licensor if this hypothetical arrangement were in place. The ability to
determine an appropriate royalty rate depends upon the specific circumstances and requires the
identification of suitable comparable transactions and prices involving third parties.
 
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Alan
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Re: Valuation Of Intangible Asset - R MODEL

October 8th, 2021, 6:09 pm

Fair enough -- I learned something. Perhaps present both methods.
 
Kamoroun
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Joined: May 28th, 2018, 7:19 pm

Re: Valuation Of Intangible Asset - R MODEL

October 9th, 2021, 9:53 am

Shot