international convention on intellectual property and competitiveness of micro, small and medium...
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International Convention on Intellectual Property and Competitiveness of
Micro, Small and Medium sized Enterprises (MSMES)
Accessing Finance: Intellectual capital readiness of Entrepreneurs and MSMES
Bob HodgsonZernike (UK) Limited
RomeDecember 2009
ZERNIKE (
UK)
ZERNIKE (
UK)
Money will find good ideas not create them
Key thoughts
Finance needs to be articulated to grow value
Some systemic hypotheses and diagnoses
Communicating potential benefits from a framework
The best approaches provide money plus
Bob HodgsonRome 2009
ZERNIKE (
UK)
IP its nature and challenges
A legal monopoly to encourage invention
Novel Useful Specific
Explicit knowledge, but usually backed by tacit know how
Complex and specialist – so costly and uncertain
Bob HodgsonRome, 2009
ZERNIKE (
UK)
Supply side perspectives
The inventor: the idea that will change the world – huge hope value and make me rich
The research institution: an output in its own right with weak commercial perspective
The commercial licence provider: revenue generating expectations tempered with restriction of own potential action
Alignment of risks and rewards clarity and competence of owners capacity to pay and to exploit position in market
Bob HodgsonRome, 2009
> Market consolidation
> Market expansion
> Market penetration
> Product enhancement
> Sales & distribution
> Product development
> Marketing & research
> Prototyping
> Market definition
> Innovation & R&DTier 0 Tier 1 Tier 3 Tier 4 Tier 5Tier 2
Product Development Stage
The Commercialisation Cycle
Tier 3 - Post-incubation Funding Structuring Relationships etc
Tiers 4/5 - Commercial Maturity
Business Development Tiers
Risk Of FailureHIGH LOW
CommercialValue
R&DAngels/3F’s
Seed
VC/IIF
VC/Expansion
IPO/MBO/Trade Sale
SourcesOf Funding
Tiers 0/1 - Pre-incubation Direction Collaboration Guidance Resources etc Pre-Seed funding
Tier 2 - Incubation Mentoring Seed funding Contacts Consulting Clients
Fiscal approaches
ZERNIKE (
UK)
Challenges in commercialisation: hypothesis 1
We have great S&T and ideas for new businesses
BUT
There is no money to take them forward
SO
Lets build a venture capital industry
Bob HodgsonRome 2009
ZERNIKE (
UK)
Challenges in commercialisation: hypothesis 2
We have lots of money which is prepared to invest in new businesses
BUT
There are not enough good ideas coming forward from the knowledge base
SO
Lets change the orientation of the science base
Bob HodgsonRome 2009
ZERNIKE (
UK)
Challenges in commercialisation: hypothesis 3
We have great S&T and lots of investment money
BUT
The two communities have opposite perspectives and cannot talk to each other
SO
Lets build a shared vision and learn a common language
Bob HodgsonRome 2009
ZERNIKE (
UK)
Typical perspectives of funding sources
New firms and established businesses – risk assessment
Loans: duration and recovery risks ideally collateral backed – IP education
Guarantees: ensure symmetrical risks and rewards
Equity: aligned risk and reward but costly
Strategic alliance: again symmetry and risk alignment
Bob HodgsonRome 2009
ZERNIKE (
UK)
Forms of capital: getting the mix right
Business cash flow
Equity injection
Loans
Guarantees
Strategic alliance
Bob HodgsonRome 2009
ZERNIKE (
UK)
Communicating potential: investment readiness
Business plan
Market data and evidence
Communications skills
Differentiating the investment pitch
Cultivation of the risk takers
Bob HodgsonRome 2009
ZERNIKE (
UK)
Risks: real and perceived
The benefit of collateral – tangible and tradable
IP – an asset but of what value?
Austin Texas – investment challenge!
But the risks are still very real technical market/commercial personnel financial
Bob HodgsonRome 2009
ZERNIKE (
UK)
Valuation: the unresolved challenge
Easy – when there is a revenue stream
But even then worries about sustainability
Before the revenue stream it is much more uncertain
And is characterised by information asymmetries inventor knows the technology entrepreneur knows the market investor needs to independently evaluate both and then to reach a deal!
Bob HodgsonRome 2009
ZERNIKE (
UK)
The starting point: has it potential value
Who will buy it?
What will they pay?
How many potential customers are there?
What will it replace?
Will it work and how much will it cost to make?
Is it likely to be profitable?
Bob HodgsonRome,2009
ZERNIKE (
UK)
Finding the application: Gyroscope and mower
Yachting enthusiast: new balancing equipment
Established the IP Created the firm BUT Very small market
Looked for help to find other markets
Became industry standard
Bob HodgsonRome,2009
ZERNIKE (
UK)
Business model and revenue sources
Selling the product
Providing a service and support
Replacement materials market
Upgraded versions and revenue
Bob HodgsonRome 2009
GRIMREAPER
ZERNIKE (
UK)
Real Economy: innovation engines
ARM – Advanced RISC Machines IP generator income from Licences and Royalties market cap - billions
Generics Group Plc – technology solutions provider IP accumulator and commercialiser – spinning out companies massive P/E ratio on flotation – hope value
Supported by specialist service provides
Bob HodgsonRome 2009
ZERNIKE (
UK)
Sources of risk with new IP
People risk: new entrepreneur and/or new team
Technical risk: it needs more testing to prove effectiveness
Commercial risk: unproven market without established price
Financial risk: little recovery potential
AND
Competitors: disruptive technology undermining value
Bob HodgsonRome,2009
ZERNIKE (
UK)
Some additional limitations
IP system is not always applicable advanced engineering around F1 racing accumulated tacit knowledge
Commercial perspectives can cripple business Pro fit and its American licensee defence costs can overwhelm revenues all but a few USA universities spend more on IP than they receive
Bob HodgsonRome 2009
ZERNIKE (
UK)
Making the market work
Bob HodgsonRome 2009
Stimulating the supply side
Stimulating interest among MSMEs
Training brokers and agents
Educating fund managers
Ensuring quality implementation
Building the history
ZERNIKE (
UK)
Thank You
Bob HodgsonRome 2009
BOB HODGSONZERNIKE (UK) Ltd
The Grove High Street
SawstonCambridge
UKCB2 4HJ
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