Data Driven Decisions

Chapter 14How Investors Think About Intangibles

I want to take a moment to share my insight on how investors think about intangible assets and what is needed in regard to intangible assets and their utility in accordance with an investor's point of view. To do this, we have to understand how different investors are profiled.

Investors can broadly be broken into two major categories and then into subcategories. The major categories are equity and debt. Equity investors (E) receive a return through three simple scenarios: An acquisition of their shares, dividend payments based on their equity ownership, or an Initial Public Offering (IPO), which is essentially an acquisition but with differences.

Debt investors (D) receive their money through interest payments. There are different mixtures or hybrids of these two groups, but for the most part, these are the major categories.

Equity investors are relying on intangible assets to create more returns in the future. Debt investors care much less about intangible assets. Debt investors care about the cash flow of a business and the ability of the business to pay the interest and return the capital via payments or a liquidity event. Within this multivariable equation, you have two of the variables here, E and D. There is another program in the matrix that matters, and we have talked about this in other examples for investment banking scenarios, but they become very relevant from the perspective of investors and those two other variables ...