What is the value of an invention

Question

I got a case on how to determine the value of an invention. And I'd like to ask for feedback on the approach I used.

The approach

came to know that it's patented and did the following:

The value will depend on the cash that it will generate over the years of the patent which will depend on how it will be commercialized (or until a new technology will substitute it)

The framework:

1- Understand the business opportunity of the invention

Market growth rates
Market size
Potential EBIT
How often does the technology change in such an industry

2- Commercialization strategy:

Do we require strategic resources that other established firms have?

How easy is it to copy the invention?

Partner with an existing player (since our invention will make their products obsolete and we can negotiate a good deal)
Dot it ourselves
Royalty fee

3- Chose a valuation method

Market approach (EBIT/revenue multiples)
Discounted cash flow. The approach I chose accounting also for the synergies the company can avail (justification provided)
Cost based approach (Not applicable since cost was marginal)

Next steps:
Assess the right partner, analyze possible competition reaction and address market risks

Answer 1

Hi there,

I think this is an interesting question that may be relevant for many people. I would be happy to share my thoughts on it:

In my opinion, there is room for improvement in your approach, especially since I feel your approach does not really fit the question at hand. For instance, using multiples would not be meaningful for an invention since there are no true comparables available.
Moreover, I feel you have not addressed the core of the question stringently enough. Instead of gathering a lot of information in the first two steps, regardless of whether it is useful or not, I would advise you to consider what information is necessary to carry out the calculations and ask about it in either the clarifying questions or a short market analysis section. For instance, instead of discussing the ease of copying the invention, which was not asked for, I would advise you to inquire about the expected time until a competitive product is released and whether there is a preliminary assessment of the market share it will take.

If you would like a more detailed discussion on how to structure any case study question, please don't hesitate to contact me directly.

Best,

Hagen