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We specialize in the valuation of high-tech property, for a variety of purposes including capital projects, mergers and acquisitions, litigation support, investments, tax matters, and financial reporting. Our team includes seasoned engineers, finance, and accounting professionals. We have the technical capability to perform the work. Frequent writers and speakers at a national level, we have the credibility to defend our work.

Intellectual Property Valuation and Appraisal Services

Intellectual properties are generally some of the most valuable assets in the world. Few assets can command the economic income and power of intellectual properties. An auto plant, grocery store, even a coal mine, cannot provide long-term economic income like intellectual properties can.

However, many in the market do not understand how something as simple as a collection of words that represent a patent or book, the arrangement of several music notes, or a basic color scheme for a tractor could command millions or billions of dollars in value. Yet they do every day because of their uniqueness in meeting a market need.

It is really quite remarkable. There is no substitute for the therapeutic effects of Lipitor. There is no substitute for the taste of Kentucky Fried Chicken. There is no substitute for The Beatles’ Hey Jude, or Kurt Vonnegut’s Slaughterhouse Five. There is no substitute for the Tiffany’s “Blue Box.” For many valuation analysts, this distinction is difficult to comprehend, leaving them confused as to how intellectual property creates value. Oftentimes, these valuation analysts will generate an inappropriate value opinion based on this misunderstanding. For example, the cost to Pfizer for creating Lipitor pales in comparison to its value. Yet many in the valuation profession retreat to using cost approaches for IP valuations when there is no historical earnings record for an asset.

At Pellegrino & Associates, we specialize in intellectual property valuation and recognize the intrinsic value that intellectual property creates. That is a forward looking concept, not a forensic exercise. We have valued intellectual properties of every imaginable type for some of the largest companies in the world. Our experience includes assets as diverse as the publicity rights for the gunslinger John Dillinger, to the patents that make retractable stadium roofs work properly and safely for major NFL teams such as the Indianapolis Colts, the Phoenix Cardinals, and the Dallas Cowboys.

Importantly, we do not submit blindly to dogmatic valuation methods that have little theoretical or practical basis. Our valuation processes and deliverable work products demand evaluating the specific value proposition that a given intellectual property creates. By necessity, we have authored cutting edge content in the profession. Our writings go beyond the dogma. Our writings are helping to drive intellectual property valuation in new directions to bring greater clarity and precision to the intellectual property valuation space.

If you have a specific type of IP that you need valued, please take a look at our specific services, including sample projects, in the following links:

Interested in learning more? Check out our Intellectual Property section.

Software Valuation and Appraisal Services

Software is one of the most misunderstood types of assets we value. Fundamentally, software is nothing more than a high-level abstraction that humans use to represent a predetermined way to transfer voltages in a microprocessor. This high-level abstraction makes it easy for humans to use and program computers, but quite difficult for many humans to value–especially those whose experience in software consists of using a spreadsheet or word processor.

Software’s complexity is a natural fit for Pellegrino & Associates. Its founder and several of its associates have undergraduate degrees in computer science or electrical engineering. So we understand how software works and, most importantly, how to value it properly.

Pellegrino & Associates performs two types of software valuations: embedded software valuations and general software valuations. Clients typically use our embedded software appraisal services to restructure assets for personal property tax reporting purposes. Clients typically use our general software valuation services for a variety of purposes including M&A, tax support, financial compliance, capital formation, and litigation support.

Interested in learning more about embedded software valuation services? Check out our Embedded Software Valuation section.

Interested in learning more about general software valuation services? Check out our General Software Valuation section.

Early-Stage Company Valuation and Appraisal Services

We have represented both investors and entrepreneurs in the valuation of early-stage technology. We’re impartial and unbiased. Our clients appreciate the comprehensiveness of our valuation model and approach. We remove the arguments over valuation methodology.

Interested in learning more? If you’re an entrepreneur seeking a valuation for an investment round, check out our Entrepreneur’s Early-Stage Valuation Section. If you’re an investor seeking a valuation for a possible deal, check out our Investor’s Early-Stage Valuation Section.

Royalty Rates

Determining a royalty rate can prove to be difficult, especially since there are so many types of approaches and methodologies to choose from. The key is understanding these choices and determining which one is most suitable for a given situation. At Pellegrino & Associates, we have the experience and the resources to provide credible royalty rate determinations. Click on this link to learn more about our process.

Intellectual Property Valuation

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Intellectual property valuation is part science, part art. The science is in the financial formulas that analysts use to quantify the myriad of inputs that drive value. Every valuation analyst, regardless of which school they hail from, learns the same formulas. The art is in how the valuation analyst applies these formulas to generate a meaningful, statistically valid, and defensible value. That is nothing a school or certification, no matter the pedigree, can teach.

Many of today’s valuation analysts simply do not have the technical background to evaluate the technical details of intellectual property. That is a problem — the devil is in the details in IP valuation. Understanding the technical details correctly can mean the difference between value being $1 billion or nothing. Without the experience to ask the penetrating questions, the chance of misstating value is high. Further, valuation analysts that do not have technical competence do not have the proper foundation to conform to appraisal standards.

At Pellegrino & Associates, we’re different. We offer a greater precision in our value opinions. We’re not generic business valuation analysts that dabble in intellectual property. Intellectual property valuation is all we do. While we have the requisite accounting and finance expertise in house to defend our work, our staff also includes engineers who have been through the product life cycle. We have run product businesses. We have received patents for our own ideas. With that experience, we bring you a perspective that a traditional valuation firm cannot match.

We have valued a variety of intellectual properties, from trademarks and patents to copyrights and trade secrets. Clients have used our valuations for a variety of purposes including tax, mergers, acquisitions, sales, litigation support, capital budgeting, and others.

Interested in learning more? Contact us to see how we can help.

Copyright Valuation

Noah Webster, the inspiration behind the popular Merriam-Webster Dictionary today, was the driving force behind the first U.S. copyright law passed in 1790. The Copyright Act of 1790 protected books, charts, maps, and other original materials.

Today, the breadth of copyright protection is wide. Ranging from bronze sculptures to books, from movies to architectural drawings, and from music to computer software, copyright protection contains plenty of nuances that can complicate the valuation process. One of the complications is the ease with which infringers can copy a copyrighted item. Nowadays, technology presents many challenges to the copyright owner. The easier it is for an infringer to duplicate the copyrighted work without getting caught, the greater the potential for value impairment of the copyright.

At Pellegrino & Associates, we dig deep to understand your copyright so that it can be valuated with precision. We ask pertinent questions that pinpoint the nuances that affect value. What attributes contribute to the copyright? What rights does your copyright entail? Do you have the right to sell the work, make copies, display the work, or make derivative works? Are all administrative issues addressed? We consider historic and prospective data to determine economic life. We spend time assessing the risk for future economic income attributable to the copyright and general market conditions.

Perhaps the biggest complication is the confusion of what copyright law includes. It does not include concepts, discoveries, ideas, methods of operations, principles, procedures, processes, or systems. It protects the expression of the item, but not the item itself, which patents and trade secrets usually protect. We work with our clients so they have a clear understanding of what their copyrights actually protect. So, if you’ve recently written a book, created a new source code, or produced the Grammy song of the year, Pellegrino & Associates can tell you how much your copyright is worth.

Interested in learning more? Contact us to see how we can help.

Patent Valuation

Since 1790, the United States has issued over 7.5 million patents, which means at least 7.5 million inventions have been protected. Without patents, inventors run the risk of competitors stealing their inventions and making money at their expense. Patents keep others from the market, protecting the ingenuity of the inventors and allowing inventors to reap the rewards of their creations. But what good are patents if their value is not known?

Patents are perhaps the most complex of the intellectual properties in a technical sense. At Pellegrino & Associates, we have the experiences and the resources to tackle the most challenging patent valuation assignments. An important part of patent valuation is understanding the patented technology. For this, we are unique in the valuation profession. Our valuation analysts have technical degrees. We understand the science behind the technology to provide you an opinion with greater precision.

You wouldn’t hire an accountant to prosecute your patents. An accountant generally does not understand the science and cannot practice before the patent office. Instead, you would hire an engineer with a law degree. So why not hire an engineer with the appropriate accounting, finance, and marketing experience to value your patents?

With our analytical and technical skills, we can take a patent and examine it from all angles. We consider all the factors that affect value including the useful life, product life on the shelf, price and market demand, and general due diligence. We get to know the patent inside and out. We go straight to the source by interviewing patent owners and experimenting with the invention itself. By the time we are finished, we know and understand the patent thoroughly. In essence, we become the patent’s experts.

Not only do we get to know the patent intimately, but we keep up with the latest information in patent law and the possible valuation impacts over time. Perhaps most importantly, our patent valuations stand up well under critical review. Our work products receive continual accolades from both our clients and third parties that review our work. In fact, our reputation has intrigued other valuation firms enough to send us their most difficult assignments.

Furthermore, Pellegrino & Associates has generated an international reputation as patent valuation experts. Our patent valuation reports and valuation models have literally traveled the globe, from Hong Kong and Kuala Lumpur to Germany and North America.

Interested in learning more about our patent valuation services? Contact us to see how we can help.

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Trademark Valuation

Trademarks have been around for thousands of years. Some of the first known trademarks were used by Roman Empire blacksmiths to distinguish their superior work from others. Today companies use trademarks much the same way they were used ages ago. Pellegrino & Associates can help you determine the value of your trademark to see what distinguishes you from the competition now.

Competition in any market can be quite fierce, and knowing the value of your trademark can give you the upper hand. After all, trademarks represent the most valuable intellectual properties in the world and are a part of our daily lives. They surround us with every waking moment, from the brand of coffee to the brand of cereal we eat before putting on our brand name watch and hopping into our brand name vehicle. We trust brands and gain satisfaction from them.

Although, trademarks are the most valuable intellectual property, they are also one of the most volatile and can lose their value instantly. For instance, an unforeseen event such as negative publicity (e.g., football star Michael Vick’s conviction) or contamination of food (e.g., salmonella concerns in the peanut butter market) can damage the integrity of a brand name. Therefore, protecting and defending trademarks is important to ensure they maintain the highest value proposition.

But valuing trademarks can be tricky as similar trademarks can exist within two (or more) different industries. A traditional valuation firm might automatically associate the trademarks together and apply damages to the intellectual property being valued. In reality, the two trademarks have nothing in common, other than appearance. Therefore, damage may be applied where it is not warranted. Pellegrino & Associates examines each intellectual property assignment individually and thoroughly so that these types of situations do not occur. We are adamant about providing the best in the industry.

Interested in learning more? Contact us to see how we can help.

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Trade Secret Valuation

Did you know every time you take a bite of Kentucky Fried Chicken that you are taking a bite out of a trade secret? When you wash down that chicken with a Coca-Cola, you are drinking a trade secret. Trade secrets are everywhere. Without trade secrets, restaurant food could potentially taste the same!

A trade secret is information that provides a business with a competitive advantage. Trade secrets can entail formulas; patterns, plans, and designs; physical devices, processes, and know-hows. Unlike patent information, trade secret information doesn’t have to be disclosed to the public. Protection of a trade secret could potentially last forever, as long as the secret is kept. Chances are that you’ll never be able to get your hands on that Kentucky Fried Chicken recipe or the Coca-Cola soft drink ingredients.

At Pellegrino & Associates, we determine the impact of competitors on the useful life of your trade secret. We establish how much time it would take to reverse engineer your invention without assistance of knowledge, which greatly affects the value of your product. We research the length of time it took to originate the trade secret and how this impacts the overall product or service value. This is just a sampling of what we can do to ensure you receive the best value opinion in the industry.

Trade secrets receive no federal protection. Instead, they are protected by state, where laws vary. At Pellegrino & Associates, we make it our job to understand trade secret laws in each state because we know the value difference each state can have on your product. We also know that good trade secret protection is key in preserving value. Companies with loose employee agreements, loose security procedures around their trade secrets, and loose IP ownership clauses put the value of their trade secrets at risk. We encourage companies to use non-disclosure and non-compete agreements to protect their trade secrets.

Interested in learning more? Contact us to see how we can help.

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Embedded Software Valuation

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Embedded software is everywhere. It is in equipment like scanners, milling machines, lathes, sorters, medical equipment, even telephone systems. And that software generally has favorable tax treatment.

Software is generally tax exempt in states that levy a business personal property tax. This exemption is a net boost to the bottom line: it lowers the effective cost of equipment and increases return on investment.

The problem is that many of today’s vendors do not itemize the software’s cost when they sell you the equipment. And traditional tax providers do not have the proper foundation to value embedded software in accordance with appraisal standards.

Consequently, many companies do not realize these savings opportunities because they cannot quantify the software cost. This issue costs companies millions each year. We can help.

We are a leading software appraisal firm—so we know how to find and value your software deductions.

We also have the proper foundation to defend our appraisals in strict accordance with federal appraisal standards. In fact, we authored the first authoritative paper on how to value embedded software and the first in-depth paper to take a critical eye on the current tax treatment of software for state and federal tax reporting purposes.

Ready to see it in action? Visit our Industries page to see what industries and clients we have worked with!

Find out what we can do for your company. Contact us for more information.

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General Software Valuation

Software can be an extraordinarily valuable asset for many companies. It can be the cornerstone of a major insurance company’s competitive cost advantage. It can enable a major hospital system’s electronic medical records system to manage the data needs of 6,000 doctors and nurses. It can be crucial to robots that apply paint to vehicles in conveyor systems.

Oftentimes, companies need to understand the value of this software to facilitate business activity. Common situations where Pellegrino & Associates has valued software include:

  • Asset sales

  • Asset purchases

  • Capital formation

  • Transfers and estate planning

  • Fair value reporting under SFAS 157

  • Litigation support for copyright infringement damages

  • Fair market value reporting under Revenue Procedure 59-60

  • Compliance with valuation requirements under the Stark Law Anti-Kickback Safe Harbor regulations

The following are just a sample of the industries that have used our software valuation services:

  • Retailers

  • Power utilities

  • Software companies

  • Insurance companies

  • Automobile manufacturers

  • Advanced manufacturing companies

  • Hospitals and outpatient healthcare providers

  • Logistics and supply chain management companies

Ready to see it in action? Visit our Industries page to see what industries and clients we have worked with!

Find out what we can do for your company. Contact us for more information.

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Investor’s Early-Stage Valuation

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Early-stage valuation is both important and difficult for the investor. In many cases, the entrepreneur presenting the investment opportunity will not have credible value indication, making it difficult for you to establish how much ownership to require in exchange for the funds you invest.

The problem is that many venture and seed funds do not adequately address the issue of valuation either. They may make arbitrary guesses to value or worse yet, use something like the Venture Capital Method to establish value. This is bad. Arbitrary value guesses are just that—arbitrary. It is easy to either leave money on the table, or demand too much, depending on the deal. Further, evidence suggests that the Venture Capital Method overvalues deals by 60% or more, at least 70% of the time. Such valuation errors can affect fund performance in a material way. Further, financial analysis is not a full-time job for many funds, yet many funds incur costs for a full staff just to perform this analysis. This means fewer dollars are available to manage the deals.

At Pellegrino & Associates, we’re different. We work in concert with you to identify the useful life of your idea and quantify, from the bottom up. From there, we build a comprehensive valuation model, complete with investor summary worksheets that describe your concept’s value proposition succinctly. Finally, we stress your valuation model with sophisticated simulation techniques. We show you the statistical distribution and probability for your investment’s value and its key value drivers.

Want to know how much cash you’ll need to provide, and when? We can tell you. Want to know the value of the exit event? We can tell you. Want to know the probability of an exit event at a particular price? We can tell you.

In addition, our team includes members who have been engineers and business owners. We’ve been through the early-stage and product life cycle ourselves, so we know how to efficiently get to the heart of a concept’s value. And we bring with us a tool set that helps us keep the costs manageable and less than a full-time equivalent, so your managing partners can monitor deals instead of struggling with spreadsheets.

Interested in learning more? Contact us to see how we can help.

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Entrepreneur’s Early-Stage Valuation

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Early-stage valuation is both important and difficult. In many cases, a company fills the funding gap to commercialize the early-stage concept from external investors. It is crucial that you know the value of your concept. You only get one chance in front of investors—it is prudent to put your best foot forward.

Many firms do not adequately address this market need. First, they’ve generally never run businesses themselves, so they lack the important perspectives of the business owner. Second, they try to shoehorn traditional business valuation methods into the space, relying on gross, top-down valuation methodologies, which investors don’t believe. Nor should they. The financials must demonstrate that your plan is reasonable and achievable, which a top-down approach can’t do. The investors look to the next deal.

At Pellegrino & Associates, we’re different. We work in concert with you to identify the useful life of your idea and quantify, from the bottom up. From there, we build a comprehensive valuation model, complete with investor summary worksheets that describe your concept’s value proposition succinctly. Finally, we stress your valuation model with sophisticated simulation techniques. We show you the statistical distribution and probability for your concept’s value and its key value drivers.

Want to know how much cash you’ll need, and when? Want to know how many people you will need to hire and when? Want to know the value impact of not having a completed business plan? We can tell you.

In addition, our team includes members who have been engineers and business owners. We’ve been through the early stage and product life cycle ourselves, so we know how to efficiently get to the heart of your concept’s value. What’s more, we’ve spent years working with the investment community to develop a presentation format for your concept that is most meaningful to investors. It works. Most of our clients have received funding after going through our process.

Interested in learning more? Contact us to see how we can help.

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Royalty Rates

For many people, the word “royalty” conjures up images of kings and queens basking in wealth and controlling kingdoms. Royalty in everyday business is not unlike those images. Royalties bring wealth to asset owners through various license agreements. These license agreements include the outright sale of an asset, exclusive licenses, and nonexclusive licenses with varying terms. No matter which license type an asset owner chooses, determining an appropriate royalty often proves difficult.

So how much do asset owners charge to license an asset? It depends. In order to determine an appropriate royalty, valuation analysts must take into consideration many factors. As a starting point, they consider the rights the licensor grants to the licensee and the circumstances of the license. The following chart gives an indication of the royalty rate magnitude based on license types.

Royalty Rate Continuum Graphic

While the chart gives a seemingly simple picture of determining royalty rates, valuation analysts have to consider other factors as well. For instance, the nature of the asset drives the complexity of the royalty rate determination. Therefore, valuation analysts must study the markets for which the product is intended.

Establishing royalty rates can be tricky because so many variables exist among numerous approaches and methodologies. Valuation analysts who use reliable approaches spend a remarkable amount of time to produce auditable and defensible royalty rates. At Pellegrino & Associates, our mission is to provide credible valuations and royalty rate determinations. We have the experience and the resources for establishing appropriate royalty rates.

We address the unique facts and circumstances associated with the fields of use for your asset. For instance, one licensee may want to use an asset for some sort of medical device. Another licensee may want to use the same asset in a completely different field for commercial purposes. The value proposition will be different for each field depending on performance, regulatory approval process, and competing solutions. We can help you define the value proposition and determine the value of your asset.

Did you know that there are approximately eight common approaches valuation analysts use to determine a royalty value? Among those approaches, only a few work appropriately as most have remarkable theoretical shortcomings – even among those with broad use. We have diligently studied and analyzed each method and can determine which approach is most appropriate for a given scenario. Don’t rely on the status quo. Call us today to get an accurate, defensible, and credible royalty rate determination!