- 3 min read

CAPITALIST SCHOLARS

A Direct Link from Mindset Change to Increased Valuation

Situation

The leadership of a for-profit company (the buyer) desired to purchase the "brand" which had emerged as a result of an academic project based at a leading university. The global academic project team (the seller), over the course of 20 years, had developed a software application with a highly recognizable name, trademark, a user base measured in tens of millions and over 100 million open-source software downloads to date (2020).

Alignment

A consultant from The Silicon Valley Laboratory core team was asked to determine the valuation of the brand. The first step was to gain alignment amongst the academic team on what exactly would be purchased by the buyer. Brand means different things to different people.

Initial Seller Expectations

The seller initially expected the sale of the brand to include only the trademarked image (logo) that had widespread global recognition. With this definition of brand, the seller had guessed the value to be in the 5-figure range based on what the project team members wanted not what they thought the image was worth. But brand is more than just a trademarked image. The consultant re-set the seller's expectations on what exactly was being sold.

What Was Being Sold

First, the consultant drove the seller's thinking about what the brand represented - the intellectual property (IP) associated with the name of the software. The IP assets and the software application did include not only the trademark, but also access to the vast user base, potential revenue generated by thousands of downloads per month (at the time downloads were free), governance of the open-source software, and, of significant importance, the seller had two missing pieces of the buyer's strategy of vertically integrating the music composition and publication value chain. Fortunately, the buyer's expectations matched the seller's at this point in the transaction process. The seller was willing to sell what the buyer wanted.

Valuation Methods

The Silicon Valley Laboratory™ consultant researched, analyzed, and recommended the intellectual property could be worth well above the 5-figure estimate. On the order of 8 to 9 figures (USD). Valuation was calculated several ways: multiple of active users, multiple of monthly unique visitors, a multiple of monthly downloads, brand value comparables, and consumer perceptions of the utility of the software. A combination of rational valuation (the numbers) and irrational premium (the perceptions) enabled the seller to triangulate on an asking price. Revenue and EBITDA multiples were not used as revenue was almost non-existent. The seller’s eyes opened as a result of the work. No longer was the asking price 5 figures, but the eventual sale resulted in an 8-figure transaction.

Mindset Change

Aside from the highly boosted valuation, a significant predecessor to setting price was the mindset change required among the academic team. Major reasons (and not the only ones) for the initial low valuation were the timidity and inexperience of the seller in a for-profit environment. The team members had no experience being capitalists. A significant shift in outlook and adoption of an entrepreneurial and a capitalistic attitude towards their property were required. No longer was the academic process of giving away IP going to be enough to maximize valuation. The work helped drive the mindset change required to boost valuation. The scholars were then capitalist scholars.

Result

Roughly $10,000 was the initial thinking of the scholars for the value of the brand. As a result of the work performed by The Silicon Valley Laboratory™, the eventual transaction value was well above $10,000,000.