Third WIPO/INSME International Training Program

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Third WIPO/INSME International Training
Program Financing your business with intellectual
property
Topic 6 Sources of finance for innovative SMEs
Public, private, formal, informal
Bob Hodgson Zernike (UK) Limited
Geneva December 2010
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Key thoughts
Money will find good ideas not create them

• 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 Hodgson
Geneva 2010
3

The Commercialisation Cycle
Risk Of Failure
HIGH
LOW
Product Development Stage
CommercialValue

• gt Market consolidation
• gt Market expansion
• gt Market penetration
• gt Product enhancement
• gt Sales distribution
• gt Product development
• gt Marketing research
• gt Prototyping
• gt Market definition
• gt Innovation RD

IPO/MBO /Trade Sale
VC/ Expansion
Fiscal approaches
VC/IIF
Seed
SourcesOf Funding
Angels/3Fs
RD
Tier 0
Tier 1
Tier 3
Tier 4
Tier 5
Tier 2
Business Development Tiers

• Tier 2 - Incubation
• Mentoring
• Seed funding
• Contacts
• Consulting
• Clients

• Tier 3 - Post-incubation
• Funding
• Structuring
• Relationships etc

• Tiers 4/5 - Commercial Maturity

• Tiers 0/1 - Pre-incubation
• Direction
• Collaboration
• Guidance
• Resources etc
• Pre-Seed funding

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Challenges in commercialisation hypothesis 1

• We have great ST and ideas for new businesses
• BUT
• There is no money to take them forward
• SO
• Lets build a venture capital industry

Bob Hodgson
Geneva 2010
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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 Hodgson
Geneva 2010
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Challenges in commercialisation hypothesis 3
We have great ST 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 Hodgson
Geneva 2010
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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 Hodgson
Geneva 2010
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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 Hodgson
Geneva 2010
9
Forms of capital getting the mix right

• Business cash flow treasury management
• Grants good but beware transaction costs
• Equity injection long term risk sharing
• Loans for working capital and short term needs
• Guarantees for those without collateral
• Strategic alliance also for credibility
  enhancement

Bob Hodgson
Geneva 2010
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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 Hodgson
Geneva 2010
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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 Hodgson
Geneva 2010
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Communicating potential investment readiness

• Business plan
• Market data and evidence
• Communications skills
• Differentiating the investment pitch
• Cultivation of the risk takers

Bob Hodgson
Geneva 2010
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Some concrete approaches

• Turkish critical monitor firm
• Argentinean Core Security
• Armenian ICT companies
• Chilean salmon producers
• Mexican unmanned plane

Bob Hodgson
Geneva 2010
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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 Hodgson
Geneva 2010
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Business model and revenue sources

• Selling the product
• Providing a service and support
• Replacement materials market
• Upgraded versions and revenue

GRIMREAPER
Bob Hodgson
Geneva 2010
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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 Hodgson
Geneva 2010
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Thank You
BOB HODGSON ZERNIKE (UK) Ltd The Grove High
Street Sawston Cambridge UK CB2 4HJ 0(044)1223
526980 bhodgson_at_zernikeuk.com

Bob Hodgson
Geneva 2010