The Importance of Intangible Assets in Software Companies

The Importance of Intangible Assets in Software Companies

Time Stamp: September 4, 2023 6:21 AM
The Importance of Intangible Assets in Software Companies PlatoBlockchain Data Intelligence. Vertical Search. Ai.

It’s about value

Companies overlook their biggest source of value: their intangible assets. When valuing a company, most think of physical assets such as equipment, buildings, and inventory. We live in a deeply digital business environment, and so even more importantly for software companies, intangible assets make up a company’s value. Yet the businesses, particularly in the software spaces, are established almost entirely on intangible assets like know how and other competitive edges they may not know they have.

Intangible assets include intellectual property rights (IPR) such as patents, trademarks, copyrights, and and other IP. But there are also a broader set of assets. Intangible assets are vessels of value that you have dispersed throughout your business. These assets are often overlooked. Yet software companies are built almost entirely on intangible assets, and they do not know what they are or how to protect them.

It is often difficult for tech companies with new products to determine whether trade secret or patent protection better suits its needs. Fortunately, it is possible to do both for a short period of time. –
FOSTER SWIFT COLLINS & SMITH PC

Overlooked intangible assets are particularly important to software development companies. For example, trade secrets or proprietary code and APIs are examples of intangible assets that can be demonstrated as valuable to obtain funding for your startup. A great deal of time and expertise goes into their development, yet they may not be displayed and promoted enough.
If these assets are not identified and valued appropriately, it will be difficult for them to realise their true potential.

Effective trade secret and know-how protection is at the core of every technology transaction. Corporate technologies, technical know-how on algorithms, processes and designs as well as knowledge of manufacturing and materials represent essential corporate assets of a tech company. –
Taylor Wessing

For example, a company’s brand recognition and customer lists can be incredibly valuable assets that are difficult to replicate. Similarly, a company’s proprietary code or integrations can provide a competitive advantage that is difficult for competitors to match. These intangible assets can be worth a great deal and people like investors can appreciate that, so overlooking them can lead to missed opportunities and loss of value.

It applies to risks too

Risks map to your intangibles. If you don’t identify and clarify what assets you hold, you may not see the risk. For example, know-how and IP leaks, licensing liabilities, and overlooking trade secrets are all risks that software companies face. These risks can be mitigated with proper planning and investment in measuring and tracking intangible assets.

[…] failure to obtain the assignment of the intellectual property rights to the product developed by the founders […] can be very expensive to resolve; in some situations, it can be fatal to the startup when it’s seeking investment or about to be acquired. –
DLA Piper

Other areas of risk can be open-source software licensing vulnerabilities, compliance risks, and third-party vendor reliance that are not always top of mind but can be just as damaging if not identified early enough. And third-party vendor risks, such as vendor lock-in or supply chain disruptions, can also pose significant risks to a company’s operations.

To effectively manage these risks and maximise the value of their intangible assets, software companies need to take a comprehensive approach that includes intangible assets. This includes conducting regular assessments of their intangible assets, investing in processes to support those assets, and developing plans for managing the various risks that they face.

It’s clear that software companies need to pay more attention to their intangible assets and the risks that they face. By doing so, they can maximise the value of their assets and position themselves for long-term success in an hostile investment and financing environment. Intangible assets play a key role in the success of software companies: identifying, valuing, and managing these assets, companies can mitigate risks and maximise their value.

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