Intangible assets and return on investment (ROI)

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From the course by University of Maryland, College Park

Financing and Profiting from Innovation for Corporate Entrepreneurs

23 ratings

University of Maryland, College Park

Financing and Profiting from Innovation for Corporate Entrepreneurs

23 ratings

Course 4 of 5 in the Specialization Corporate Entrepreneurship: Innovating within Corporations

This course is for aspiring or active corporate entrepreneurs who wants to understand how to secure and manage funding for their corporate venture. We will demystify key accounting and financing concepts to give corporate entrepreneurs a guide to developing the business case for their ideas, and securing funding to translate ideas into reality. This course focuses on four key areas: • Learning the fundamentals and how to create financial statements for new ventures within the corporate environment; • Examining valuation techniques for understanding how to assess and grow the value of the corporate venture; • Exploring the different sources of internal and external financing for the corporate venture; and • Applying lessons learned in the course to structure a funding deal and pitch the corporate venture. Try this course for FREE at https://www.coursera.org/learn/corporate-entrepreneurs-financing

From the lesson

Introduction to Financing Corporate Ventures

In this module, we will learn the fundamentals and how to create financial statements for new ventures within the corporate environment.

Welcome to Module 11:16

Finance for the corporate entrepreneur3:31

The entrepreneurial spectrum6:57

Corporate entrepreneur vs. startup entrepreneur5:56

The "too typical" return on investment (ROI) process7:21

A better approach to return on investment (ROI)4:27

Intangible assets and return on investment (ROI)4:43

The roles of products and leadership in return on investment (ROI)4:03

Financial statement basics4:12

Financial statement details7:13

Financial metrics7:09

Meet the Instructors

Michael R. Pratt
Lecturer of Technology Entrepreneurship
Maryland Technology Enterprise Institute (Mtech)

So I always like to talk about,

when I'm teaching a course on corporate entrepreneurship,

I always like to talk about this issue of intangible assets of the corporation and

how the return on investment for those assets are determined, or

what is the return on investment, or what's the impact of intangible assets?

The question is, is there an ROI for corporate entrepreneurship for

large company?

Okay, the answer is yes if you're looking at traditional ROI calculation to our

80% of assets in the corporation used to be tangible and

generated the majority of the GDP in the country.

Now, significant changes have occurred and a lot of companies now are looking at

technology-based businesses and they're not tangible assets, they're intangible.

So if you're looking at the new reality where 90% growth comes from

intangible assets or what we call knowledge-based capital In the ROI,

which has a completely different value, let's say.

So knowledge-based capital is essentially research and

development, product design or product development, and then human capital, okay?

And that's where most of the growth has come and companies abuse those.

But, the interesting part of this is that the methodology for

calculating the result of economic activity still

focuses on physical assets of the corporation.

The real better example of this is that Google where only 5% of Google's

worth is related to its physical plant, its physical assets.

And research suggests that the use of Google's GPS and

location based data could generate a half a billion dollars.

Sorry. Half a trillion dollars in consumer value

by 2020.

So, it's a very different way of looking at ROI when we're talking about intangible

assets and knowledge-based capital.

So, as a corporate entrepreneur, you should be asking yourself these questions,

does your organization view the cost of human capital as an expense or

an investment?

Right?

Salaries and most companies strictly technology software companies make up and

work between 50- 80% of the company's total spend.

So that's a large investment in a large outflow of cash for human capital.

Venture capitalists, they make an investment in

a company they're primarily not what a significant factor in their decision

to invest based upon the value they place on the people themselves.

Who was, who are the people that are involved?

Can they execute the business plan?

Have they been successful in the past?

And, you know, a lot of the companies, a lot of the early stage companies that

are now being acquired are being acquired under what they call an acqui-hire.

Acqui-hire is kind of a hybrid between an acquisition and a hire.

You buy the company so you want to capture the human capital that is in the company

and most of the time when these acqui-hires happen, you'll have a part

of the agreement says that the person are key to them will have to be involved for,

let's say some time frame, let's say two years or there'll be an adjustment.

So, Again, ask yourself,

ask your corporate command group, ask yourself this question.

In my company what human capital are we purchasing in this company?

Are we purchasing people who can be effective in the in the core business?

Meaning sustaining status quote.

Or are we hiring people who can build new and innovative growth businesses?

The term, when you're talking about people, the term high potential may be

completely different nuance when you're talking about

whether you're being hired to be in the core business as the head of sales or

the head of marketing in the core business versus a person who is going to come in

and run a corporate entrepreneurship function.

Remember that the growth of many of the big companies, giant companies, have been

achieved by people working from inside the organization like Apple, Google,

all the growth of those companies have all been created by the human capital.

So human capital is extremely important.

Knowledge-based capital is different than tangible assets and

the calculation or the consideration of ROI should be different for those.

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