IP-backed finance – a safe way out of the scale-up Valley of Death?

This article from yesterday’s FT - The UK has a problem with corporate scaling – outlines how many UK high-growth tech firms are stuck in a “valley of death” due to a lack of traditional assets to secure loans and so can’t get the funds they need to successfully scale-up.

The FT piece says: “Lord Jim O’Neill, the former government minister and economist, said last year that the UK did well to foster start-ups, but where it had issues was the “valley of death” between initial funding and generating sustainable revenues and securing the finances to scale.” The piece concludes: “For a country in dire need of higher economic growth, the issue may not be how many businesses it starts. It is how many it can grow.”

The biggest issue facing UK firms on the cusp of scaling-up is how to fund it. Most simply don’t have the tangible assets to get bank lending; without them, they are forced to either get expensive equity investment, or list – usually abroad. The FT points out that high-street banks “continue to dominate lending to small businesses. These banks require burdensome personal guarantees and reject about 50 per cent of loan applications. So a lot of businesses do not even bother trying.”

What modern businesses need are modern lending solutions to the collateral challenge: and Inngot has been working with banks to create such solutions. With Inngot’s input, in January 2024, NatWest launched the UK’s first mass-market loan to allow IP-rich companies – mostly scale-ups – to use their valuable IP as collateral for lending.

The NatWest facility enables borrowing of between £250,000 and £10m, depending on the value of the intangible assets - software, patents, designs – the company owns. That value is independently determined by Inngot’s online IP identification and valuation platform, and NatWest relies on Inngot to monitor the IP value over the lifetime of the loan.

Andy Gray, Managing Director of Commercial Mid-Market at NatWest Group, said at the new loan’s launch:

“As the UK’s leading business bank, we are delighted to have joined forces with Inngot, to provide a truly innovative and progressive proposition for high growth SMEs and scale-up businesses. Many of these businesses struggle to access debt funding when they need it without having to dilute equity. This new offering will allow these firms to go further and faster in their growth journey.”

Oxfordshire-based software provider Sci-Net secured a £700,000 IP-backed loan in April 2024, the first loan under NatWest’s new scheme. The funding has supported software development and created local jobs (natwestgroup.com).