By Eslam Shaaban
For decades, Kodak was a global giant in the photography industry all over the world. Over the past decade, however, their business gradually started to fall to where Kodak is now bankrupt.
Why has Kodak failed and vanished? The answer to this is resistance to change. In a digital age that is increasingly relying more on technology and artificial intelligence, strategic business decisions must move in the same direction. With the explosion of digital photography, in just a few years people started to use digital cameras and smart phones instead of old-fashioned cameras. Kodak, however, decided to refuse digital photography, despite having invented it in the first place, and failed to develop a business strategy outside of a film-based model.
The Intangible Era
As anyone can attest, everything in our lives is slowly turning toward the digital and the virtual. This has had a huge impact on the economy, with the value of intangible and virtual assets growing to eclipse real, tangible assets. A recent study illustrates the rise in value of intangible assets on the S&P 500 stock market index between 1975 and 2015. In 1975, tangible assets represented 83% of market value, while intangible assets values were only 17%. In 2015, the value of intangible assets on the S&P was 87%, while the value of tangible assets was only 13%. This is a clear trend showing the direction of the market.
With the rising importance of intangible assets, it is essential for all countries to have a well-developed business and regulatory framework that finances innovations and in intangibles. One way of doing this is for countries to support accepting intangible assets as collateral in the same manner as tangible assets.
I have met many entrepreneurs and innovators from around the world. In nearly all cases, I have heard entrepreneurs state that their main obstacle is funding. In many cases these entrepreneurs have developed innovations of real value thanks to business and innovation incubators. They have then been stopped by financial institutions being reluctant to test new waters and develop financing models that accept intellectual property (IP) or other non-tangible assets as collateral.
While financial institutions are understandably reluctant to finance entrepreneurs, who cannot provide adequate collateral to secure debt repayment, they are keenly investing in Fin-tech innovations that develop and digitize their services. Given their work on fin-tech innovation, these financial institutions could, in parallel, develop new financial services for businesses with intangible assets, especially those developing fin-tech solutions.
There is a crucial need for new methods of financing innovations and entrepreneurs. If IP assets were used for funding innovative products, the costs of lending to these businesses would decrease due to the decrease in risk related to “unsecured” (i.e. intangible) lending. This would have a positive impact on the ability of those entrepreneurs who have IP ownership to raise the capital necessary for their projects, boosting the economy overall.
Many countries around the world say they are actively trying to support innovation. Several have taken very aggressive steps toward financing innovations themselves. In April 2017, for example, Singapore announced the creation of a Singapore $1 billion (USD $718 million) fund to support innovative companies and help them to expand their businesses worldwide. In the meantime, however, countries must first create well-developed business and regulatory frameworks that facilitate and encourage the financing of innovation. This will never happen without cooperation and coordination between all the concerned parties. Financing innovation with IP could be a key factor for supporting innovation and encouraging economic growth.