Entrepreneurial Finance and Private Equity
Middle Stage
Class #10 – Monday,
November 18, 2002
Patent Valuation
Case: Aberlyn
Capital (9-294-083)
Reading: Methods of Intellectual Property Valuation
Optional Reading: A Note
on Venture Leasing (9-294-069) This
note is useful for those unfamiliar with the industry practices in venture
leasing.
Network File:
none
- How
does venture leasing differ from traditional venture capital
investing? In what ways is it
similar?
- Aberlyn
proposes to lend RhoMed $1 million.
RhoMed will make three even payments of principal, at the end of
years 1, 2, and 3, as well as 15% interest on the amount outstanding
before the repayment. For example,
at the end of the first year, RhoMed will pay $333,333 of principal, plus
$150,000 of interest ($1,000,000* 15%).
In addition, Aberlyn receives about 70,000 warrants. Each warrant allows it to purchase one
RhoMed share for $1.45 at any point over the next five years.
- How
did Aberlyn calculate how many warrants it should receive? Does the warrant exercise price of $1.45
reflect RhoMed’s value.
- What
is the real rate of return to Aberlyn?
To calculate this, you will need to compute the value of the
options using the information above and in the case. Foot note 9 in the case provides two
suggestions of value.
- Does
the valuation of the patent to be transferred to Aberlyn as part of the
FLIP, reproduced in Exhibit 8, appear to be reasonable?