IP Valuation of Indian Startups for Southeast Asian Joint Venture Investments

Introduction

Intellectual property has quietly become the most valuable thing an Indian startup owns and the hardest thing to price. According to WIPO's Global Intangible Finance Tracker, global corporate intangible assets reached USD 61.9 trillion in 2023, ten times their 1996 value, with India ranking among the top twenty most intangible asset-intensive economies globally.

Against this backdrop, Southeast Asian joint venture investors are increasingly looking at Indian tech and health startups not just for talent or market access, but for their IP. India had over 1.17 lakh DPIIT-recognised startups as of December 2023, and the digital health sector alone attracted USD 7.92 billion in venture capital between 2014 and mid-2024, ranking second in Asia-Pacific. Yet when these startups sit across the table from a Singapore or Indonesian JV partner, there is often no credible answer to the most basic question: what is this IP actually worth? This blog examines how that question is answered and where current practice falls short.

How Do You Value IP?

Three main approaches guide IP valuation: cost, market, and income. Each approach has its advantages and limitations.

The cost approach values IP based on the expenses incurred to create it or the costs needed to recreate it. This method is straightforward and supports tax documentation, but it doesn't accurately reflect economic worth. For example, a health-tech startup that invested three years in developing a diagnostic AI model cannot claim that the IP's value is only based on its research and development expenses. Potential revenue, competitive advantages, and regulatory barriers are not captured in a cost-based assessment.

The market approach is simpler. It involves finding similar IP transactions and comparing against them. Commercial databases like Royalty Range and the ASEAN IP Register provide data on licensing deals across various industries. In September 2023, the ASEAN Working Group on IP Cooperation (AWGIPC) approved an IP Valuation Toolkit created with WIPO. This toolkit suggests comparing licensing transactions from reliable databases. The challenge for Indian startups is the lack of comparable transactions. India's IP licensing market is limited and opaque, and many early deals remain undisclosed. Additionally, Indian pharmaceutical and biotech patents face limitations under Sections 3(d) and 3(e) of the Patents Act, 1970, which restrict the granting of evergreening and combination patents. As a result, US or European patent references can often exaggerate the value of similar Indian IP.

The income approach is where most serious cross-border valuations typically fall. The Discounted Cash Flow (DCF) method forecasts future cash flows linked to the IP and adjusts them to present value. The Relief-from-Royalty (RfR) method estimates the royalty the owner saves by owning the IP; this saved royalty stream, when capitalized, represents the asset's value. The RfR method is also mentioned in the ASEAN IP Valuation Toolkit as suitable for the valuation of internal transfer pricing royalty rates for multinational companies, especially for setting up joint ventures. For instance, a pre-revenue Indian health tech startup with a short patent list was able to come up with an IP valuation of USD 9.5 million, and its investor pitch was changed accordingly. Sensitivity of assumptions, however, is an important consideration.

The results of the DCF and RfR can be widely different, depending on the revenue expectations, growth rates and discount rate used. In Indian health-tech, the potential comes not in the form of registered patents, but rather from proprietary information like datasets of purchase behavior within pharmacies, patient diagnostics, and repositories of electronic medical records. Typical income models, which are based on patent revenue only, ignore this key point. There is no commonly accepted approach or similar database for the valuation of data assets in cross-border ASEAN licensing scenarios which poses a challenge for the practitioners to go through with specific pricing models with its own tax and competition law consequences.

Due Diligence: What SEA Investors Actually Check

IPO's guidance on IP Due Diligence Readiness highlights two specific deal risks. The first risk is that defects will lead to lower negotiated terms. The second risk is that delays in fixing issues may prompt the counterparty to back out. Doing this raises the hope for Indian start-ups that their registration in India may be welcomed in ASEAN markets. This is not the case. There is no single system in ASEAN for trademark protection; protection can be secured either in each jurisdiction or by using the Madrid Protocol. If a joint venture partner is one from Vietnam or Thailand, a licensed brand which is not registered in their market cannot be used in Vietnam. and Thailand.

Consideration of the enforceability of the patents is required. The examination timelines were reduced in the amended Patent Rules of 2024, but the Indian Patent Office still had just 593 patent examiners in 2022-23,, while China had 16,00014. That implies that the backlog in the prosecution of patents still matters. The added dimension of health-tech IP is why regulation should be another primary sticking point when preparing for mythical investors. No matter how good an algorithm is, it will not gain "value" if it is not approved by the competent health authority in the country where the algorithm is intended to be used (CDSCO clearance or oversight from the health authority in the country where the algorithm is used, is now required). One of the biggest structural problems is the lack of uniformity. ISO 10668 is a globally agreed upon standard that describes brand valuation approaches and reporting.

Royalty Benchmarking: The Transfer Pricing Tightrope

Any royalty payment between joint venture partners who are related companies must follow the arm's length principle under Sections 92 to 92F of the Income Tax Act, 1961. The Indian tax authorities are very strict about outbound royalty transactions; they need detailed documentation showing the necessity and benefits, along with proof that services were actually received. The CBDT's amendments from December 2023 improved the treatment of intra-group loans but left the benchmarking method for IP royalties largely unchanged. The Comparable Uncontrolled Price (CUP) method, Cost Plus Method, Profit Split Method, and TNMM are all available options, but each requires up-to-date documentation; this means completing a new benchmarking exercise every year.

It's important to highlight the scale of the issue. Global royalty and licensing fee receipts reached USD 494 billion in 2023, a significant increase from USD 191 billion in 2010. The benchmarking process is also highly debated. The one big problem is the data. The ASEAN IP Register is only used for filing information and not for the licensing terms. They may be commercial databases that are expensive and tend to be transaction-oriented with a Western history. Consequently, many royalty rates for India/SEA joint ventures are based on broad principles and general approaches rather than on an in-depth analysis of data. The UN Transfer Pricing Manual provides helpful guidance regarding transfer pricing of marketable intangibles: If the licensee is responsible for substantial development expenditures in a new market in the ASEAN region, then this must be reflected in the royalty rate. This reasoning applies directly to most India-SEA joint venture structures, yet it is often ignored.

What Needs to Change

Three things would materially improve the IP valuation environment for India-SEA JV deals. First, Indian startups need to start IP audits earlier twelve to eighteen months before JV negotiations, not during them. Second, valuation methodology needs to be triangulated: RfR paired with DCF paired with whatever market comparables exist, with explicit sensitivity disclosures. No single method is adequate for early-stage Indian companies. Third, India needs a mandatory domestic IP valuation standard aligned with ISO 10668 and IVSC principles. The ASEAN Toolkit's minimum reporting standard offers a ready template. Until that gap closes, Indian IP valuations will continue to face an uphill credibility battle at regional negotiating tables regardless of the underlying quality of the innovation.

Author: Saumyaa Upadhyay, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

References

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