market approach method

LUCIO fernhando ORJUELA - 212032-148STAGE 3 date: 09 april 2024

Valuation and negotiation of technology

Market approach method to technology value

market approach method

Market approach method Is a valuation method used on tangible and intangible assets. Its foundation is since the value of these assets is equal to similar assets in the market and similar companies. Thus their value is a function of the specific value given by the place, time and specific market. An example of this method is the value of houses in a neighborhood: a house will have a similar value to one of the similar houses in the same neighborhood.

How to value technology with this method?

Regarding intangible assets such as know-how, innovation, copyrights, patents, etc., the use of this method is based on a successful model designed by TIAX LLC called ValuGrid, to compare and value the intangible assets with respect to the value they have in other companies with the same characteristics and that operate in the same market as the evaluated company. Technology value is:

Technology value = Similar technology value + % Technological valuation

It means that technology (innovations, patents, copyrights, know-how) are valued depending on the return perceived by the company regarding the investment made for the development of this technology. This assessment can also be affected by these factors (factors associated with the particularity of the developed technology since not all of them have the same behavior):

• Nature, form and stages of its development.
• Perceived technical risk.
• Perceived business risk.
• Economic impact and life of use.
• Specific details of the transaction.

This last factor is decisive in knowing the real value of the technology, since when carrying out a licensing, sale or technology transfer transaction, this value will be affected by the technological valuation percentage.

% Technological valuation = adjusted rate of rteturn / Investment in technology

The result of this percentage will be added to the similar technology value to know the technology value. The adjusted rate of return depends on the time in which the transaction is made, among other additional factors as mentioned above, and it must be considered that not all technologies are the same, develop at the same speed or have the capacity to generate returns at the same speed, so each transfer case will have its own conditions.

How can companies create value from their innovation?

Companies generate value from innovation when innovation becomes a tool to increase the company's profits. Thus, innovation is a generator of added value to the entire chain of activities carried out by the company, generating a competitive advantage over the competition and the preference of consumers, who give the true value of the company with their purchases. Some of the ways in which innovation generates value are:

• The creation of new products or services.
• The creation of a substitute product or service that offers more and better uses.
• The modification of packaging or presentation adjusted to the needs of the consumer or a strategy to offer the service.
• The improvement in a work methodology, which generates a more timely and reliable response.
• The invention of a tool that facilitates and improves performance at work.