What’s an “Exclusive License” and How Does it Work?

exclusive license contract capital corp merchant banking orlando

There are projects that exist where the project’s owner/promoter has acquired an “exclusive” license to commercialize a product and/or service.  Although the costs incurred by this person could be seen as an equity contribution to the project, the license itself, or value thereof, most of the time will not be.

An example would be that Promoter A, who has an “exclusive” license from Company B to sell his revolutionary “product” across the United States.  Promoter A contacts an investor group with a funding request to begin selling the product to the US market, and Promoter A tells the investors that he invested $100,000 into his company but that the combined value of his investment and the License automatically gives his company a value of $10.0M.

Even though the $100,000 is a respectable amount, the actualy value of the company will still need to be determined professionally. And it is doubtful that a professional appraisal firm will confirm the $10.0M; after all, the value of the license is derived from the successful commercialization of the project.  This will only happen when funding is in place for a sales staff.  Also, one must account for the fact that a license is fundamentally a privilege to sell a product; it does not carry any patent or trademark rights to the licensee holder – in other words, a tangible asset for the funder.

There are still some instances where a license does have a certain intrinsic value, though.  For example, when the promoter is the sole user so the company cannot bestow licenses to other groups, or he/she has a strong contract where the company granting the license could not easily rescind it.

Always make sure that you make an informed decision in all cases,

All the Best,

The Capital Corp Team

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