Intangible values or assets are things like intellectual property, brand equity, market perception, trust, expertise and relationships. These things have considerable economic value but it's difficult to put an objective number on this in the way you might with a bit of machinery, or a house. Often the share of intangible value is simply worked out from what's left over once the tangibles have been accounted for.
Some of the world's biggest companies are built around leveraging intangible assets. Consider a social network like LinkedIn. Their business model leverages the intangible value of a professional network in driving sales and discovering opportunities.
We also know that the share of value attributed to intangibles compared to tangibles is growing: intangible goods account for an estimated 84% of the enterprise value on the S&P 500, compared to just 17% in 1975.
Within financial markets this pool of intangible value can help explain share prices that vastly exceed the book value of an equity. It can also contribute to volatility. Look at what happened to the Facebook share price in the wake of the Cambridge Analytica scandal. Loss of user trust - an intangible - resulted in their market value dropping by $135B, before bouncing back a scant 8 weeks later. This volatility translates into a shortening life-span for companies; not all companies are able to weather a loss of user trust in the way Facebook did. Companies listed on the S&P 500 had a 61-year average tenure back in 1958. By 2027 that figure will have dropped to just 12 years. It’s easier and faster to succeed and to fail in an economy built around intangible assets.
Why this matters to us.
For startups and early stage investors this shift to intangibles has a massive upside. Because more of the value is contained in the idea or brand it’s easier and cheaper to create potentially disruptive companies than ever before. Overnight viral growth can be triggered by something as simple as a retweet from an Instagram influencer.
The venture creation business model we're operating relies on us being able to leverage our expertise, skills and networks - our intangible assets - to bootstrap ideas into profitable, high impact companies.
We're also predicting that the systemic shift to intangibles democratises value creation in quite radical ways. Anyone, irrespective of capital or background, can - in theory - participate in the intangible economy. Consider, for example, the rise of the influencer economy. In light of this we think it makes sense to focus on ideas able to help people, help societies, unlock and protect intangible value. This helps explain why we're so bullish on businesses that foster design innovation (Makerby), protect human rights (Lautonomy) and enhance learning opportunities (Stealth).
Finally, we think we can repurpose intangible value for social good. Consider something as simple as a t-shirt retailing for £40. The tangible value embedded in that product is the manufacturing and sales cost of £5. The remaining £35 consumers are willing to pay is a hard reflection of intangible brand value. Our thinking is that we can sustainably repurpose some of that brand value to fund things like carbon capture (Tenton).