Trends in Intellectual Property Funding
- Few Kenyan financial institutions would be willing to lend based on intellectual property rights, mainly due to the high risk and lack of historical performance information.
- As the world moves towards an increasingly digital era, there is and will be a strong demand for innovations.
- Most of today’s innovators are young people with technical know-how but weak in terms of funding.
Kenya enacted the Security of Movable Assets Act in 2017, which allows the use of intellectual property rights as collateral to obtain finance. However, little has been done to achieve this.
As far as I know, few Kenyan financial institutions would be willing to lend based on IPRs, mainly due to high risk and lack of historical performance information.
Funding has been provided primarily through grants, personal loans, and other traditional methods. Very few lucky innovators have managed to attract equity investors.
As the world moves towards an increasingly digital era, there is and will be a strong demand for innovations. Innovations are at different stages of development. Some are at the concept stage and some are at the acceleration stage, with few being full-fledged innovations.
Most of today’s innovators are young people with technical know-how but weak in terms of funding. This leads to a quagmire where technicians are unable to scale up their innovations due to limited access to finance. The supply of capital is generally hesitant to invest in these innovations.
This can force local innovators to think outside the box and examine global trends in IP funding. I would encourage local innovators to think globally as the Kenyan market prepares for innovation funding.
In addition to traditional methods of financing innovation such as grants and equity, new methods of financing are emerging.
As Kenyan innovators go global, there is a need to seek intellectual property rights protection that is global in nature. Under various treaties and regimes, it is possible to protect intellectual property globally.
There are many new developments in intellectual property financing, as reported on the website of the World Intellectual Property Organization (WIPO). One method is to use an intellectual property rights certificate as loan collateral.
Although Kenyan law allows it, it is rarely practiced. Globally, some financial institutions lend in exchange for intellectual property rights. In my opinion, protecting your intellectual property (IP) globally would attract more loans. At the very least, it’s prudent to protect your intellectual property in the lender’s jurisdiction.
Other innovative methods reported by WIPO include the auctioning of intellectual property rights. Imagine a situation where you can sell your innovation online without having to spend so much money to develop it. It’s as simple as innovating for a particular industry and auctioning off your innovation to the highest bidder in the industry.
According to the WIPO website, there is a current global trend where organizations like IP Auction Inc. are holding such auctions. Commercial exchange of technologies is a current trend where developers can auction their technologies to the highest bidders.
Many financial transactions supported by IP are carried out. Some include sale and leaseback transactions, mortgages and license transactions. In the latter case, the innovator would obtain a loan from a lender who would then mortgage the IPR.
Revenue from the use of DPI is used to repay the debt and also earns the debtor revenue. Simply put, an innovator borrows money and transfers their intellectual property to the lender.
The lender allows the innovator to commercialize the innovation on the condition that the proceeds are used to repay the loan. Once the loan is fully repaid, the intellectual property reverts to the innovator.
Although Kenya’s innovation environment may not be mature as far as financing is concerned, there is every indication that innovative financing may soon become a trend.
For now, innovators can participate in the global marketplace for funding.