FREE ELECTRONIC LIBRARY - Dissertations, online materials

Pages:     | 1 |   ...   | 12 | 13 || 15 | 16 |   ...   | 29 |

«Research commissioned by the Intellectual Property Office, and carried out by: Martin Brassell, Kelvin King This is an independent report ...»

-- [ Page 14 ] --

Even if a company has been trading for several years, there is a limited amount that you can derive from their accounts. Angels are not going to spend weeks pouring over spreadsheets, and balance sheets are a bit pointless at this early stage; most of the assets will be intangible, especially IP, and the company’s accountant will have no idea what to do with it.

Serial investors’ personal views on IP

For the purposes of this report, five “serial investors” (business angels who regularly invest in early stage growth companies) were provided with IP questionnaires. All were active in networks based in the South and South-East of England, East of England, West Midlands and Wales, though the amount of investments identified through their networks as a proportion of their portfolio varied quite considerably, ranging from 30% to 90%.

Their views are set out in order below marked A-E (not all answered every question). They are intentionally unattributed, so as not to be interpreted as a reflection on particular current investments. These provide an informative picture of how a selection of high net worth individuals and sophisticated investors feel about IP.

When assessing a prospective investment, investors were asked to identify the main things they

looked for and where IP featured amongst them:

–  –  –

It’s the first three that determine whether you have a business and the last three that are relevant in determining the value of the business. If you answer those questions, simply and clearly, you have the best chance of starting the conversation that is the investment process.

B: Quality of management team, unique and defensible selling proposition, market size, scalability, competitive situation. IP plays a key role in establishing a defensible USP by providing innovation and entry barriers.

102 The role of intellectual property and intangible assets in facilitating business finance

–  –  –

None of those interviewed were impressed with the quality of information that they received from prospective investee businesses. Three were particularly critical: A stated that IP awareness was “shockingly bad amongst almost all levels of business”; C pointed out that there was “no generally accepted framework” for presenting IP: and E stated that “no more than half the investments I see have a quality approach to this area and even then it is often riddled with amateurish thinking and execution.”

–  –  –

A: At least 70%, but when really early it’s everything.

B: Apart from the management team the key consideration is a unique, scalable and defensible selling proposition in an attractive space that offers global market potential.

C: Valuation of all companies is an inexact science. When it comes to early stage companies the problem is particularly acute. There are usually no profits to multiply so a multiple of turnover is often used as a poor proxy. Amount of time, energy and money invested to date, quality of the management team, size of the market, barriers to entry are all important considerations. At an early stage, IP can represent as much as 75% of a company’s value.

E: Generally speaking, and especially with pre-revenue or very early stage businesses, the IP is the only thing you have to value with anything approaching an objective framework.  Too often valuation is gut-feel based and approached from the owners as ‘how little can I get away with giving away to investors whilst still raising the money I need?’  They always overlook the fact that experienced investors will evaluate an investment as requiring at least 200% of what they invest on day 1.

The investors responded as follows when asked about the key risks and dangers they associate

with companies that are ‘IP rich’ (and whether these are any different from other businesses):

A: Valuation and delusion.

B: IP is very people-dependent and often concentrated, sometimes in just one individual. IP-rich companies tend to operate in a fast-changing environment where new competitors or technologies/products can destroy your business almost overnight.

Life cycles are short and IP-rich companies need to be able to continuously reinvent themselves in order to prosper over longer periods.

C: The IP isn’t held by the vehicle one is investing in, there are others who claim the same IP but are much bigger and therefore have deeper pockets to pay for lawyers, the IP is technically sound but has little or no commercial application.

E: Even when IP is of good quality and has been well protected through a considered IP protection strategy, it is of little value if the company cannot answer the question, ‘How will you respond when you come under attack from ‘Megacorp’s’ IP lawyers? which will happen if the techno is disruptive and generating real revenue in established markets, because the losers in these situations always seek to fight back in some way.   There a host of good answers to this question, but the way in which a management team answers them is a key bellwether of their quality and intellectual horsepower; it also reveals clearly what experience they actually have of fighting in an IP-driven world, because too often such opportunities are advanced by well-intentioned boffins who do not have enough commercial DNA, which is another area in which angel investors can always help.

104 The role of intellectual property and intangible assets in facilitating business finance

–  –  –

Venture capital and private equity Industry view Mark Florman is the Strategic Adviser and Industry Ambassador for the BVCA. He also happens to have a specific interest in IP, both as an investor and as an advisor to the African IP Trust. He

provided the following commentary on the latest investment figures:

There are indications that investment activity is beginning to pick up: sentiment started to improve from mid-2012, due in part to AIFMD being substantially settled. It is not advisable to read too much into quarterly and half-yearly trends, which can be distorted by large individual deals. In addition, the fundraising cycle can easily take 18 months or more to complete, and has been difficult of late, especially for Euro-denominated funds.

Arranging an exit, whether through the stock market, a trade sale or to a new PE owner has been difficult for the past three years due to general uncertainty. Investors are now prepared to accept a little more risk, however.

Florman also provided some specific comments in relation to intellectual property in the private

equity context, firstly on the subject of IP management:

One of the key value enhancement opportunities for private equity is to invest in R&D.

If you are buying quite a well-established business, and you want to add value, then new IP is one way to do it. Many company boards are not as strong as they might be on that aspect, because they have never really thought about R&D in such a way.

Investor IP strategies can be about the management of downside risk, or making sure you can reap the rewards. In one previous investment of mine, LM Wind Power (a Danish company), we found a number of patentable inventions which had not been registered – the company went from about 5 to 20 patent applications within a couple of years. One of these was a lightning conductor device which provided a significant competitive advantage but which had never been protected.

As a result of attending to IP, you may find there is more value on your balance sheet than you realised, because you may not recognise assets that have been there for a while. In a recession, awareness of IP is more important because you are looking for everything that could represent additional value. In boom times, everything can be going well and you are not looking hard enough!

He also offered some thoughts on the part played by IP in due diligence exercises:

IP is not always very high up on the checklist. It should be on there, but its importance will depend on the type of company in which the investment is being made. Fixed assets are more likely to be obvious, but equally, it might also be obvious that certain brands have significant value, and that strategies need to be in place to protect it.

106 The role of intellectual property and intangible assets in facilitating business finance

–  –  –

Nick Goddard’s breadth of experience is unusual, having worked as both a scientist (a physicist and chartered engineer) and a corporate financier with BNP Paribas and ABN Amro. His experiences working on both sides of the funding ‘fence’ have led him to some particular views

on where IP ranks in the list of priorities from an equity funding perspective:

–  –  –

Industry initiatives: the Business Growth Fund In July 2010, the Chief Executives of some of the largest UK banks along with the British Bankers Association set up a Business Finance Taskforce to consider what more could be done to help the UL return to sustainable growth. In October 2010 the Business Finance Taskforce committed to a new source of growth equity for SMEs. BGF (Business Growth Fund) was launched in May 2011 funded by five of the largest UK banks (HSBC, RBS, Standard Chartered, Barclays and Lloyds TSB) with £2.5bn of committed capital.

BGF’s first investment was made that October and by the end of 2012 nearly £100m of new capital had been introduced into growing British businesses.

The capital provided by BGF (usually ordinary shares, warrants/options and unsecured loan notes) combines with alternative non-bank providers of mezzanine and junior debt and traditional bank lending of asset-backed debt, senior debt and working capital facilities.

Whilst funded by banks, BGF confirms that equity and debt positions require different investment skill sets, and that the skills necessary to identify and perform due diligence on good investment prospects are often too expensive to be compatible with the typical low margin debt present in conventional banking. BGF’s processes involve identifying businesses requiring growth capital that have passed through the early funding stage and demonstrate that they have a sustainable competitive advantage and an appropriately experienced management team.

A meeting with Alistair Brew, Investment Director, Mark Nunny, Senior Investment Manager and John Rhodes, Director of Marketing and Communications provided insight and a summary as to how BGF operates and its investment attitude.

However sophisticated a business plan may be, the deal team at BGF always prepares its own summary case for investment which is then taken to an investment committee for consideration.

BGF typically invests £2 - £10m of growth capital for a minority stake (10 - 40%) and a board seat and backs privately owned, profitable companies typically within a turnover of £5m to £100m. BGF also has the ability to make co-investments alongside other growth capital providers.

As minority shareholders, BGF is set up to work in partnership with incumbent management teams, rather than inserting their own team. However, they will assist in introducing nonexecutives and other senior management to complete the team, for example a finance director.

BGF only has one vote at the Board meetings and no day-to-day management control, unlike more mainstream private equity.

BGF offers long term funding of up to 10 years and seeks to develop a partnership with shared goals and objectives from the outset. Most business sectors with the exception of regulated financial services and property development are considered for investment. With seven offices across the UK, they like to be geographically close to the business invested. BGF can invest using unsecured loan notes as part of its equity investment but this is not regarded as being comparable with a conventional debt position because the capital is unsecured and the repayments may not start until year five and beyond.

108 The role of intellectual property and intangible assets in facilitating business finance As with other investors in the VC space, determining the strength, resilience and adaptability of the management team has been regarded as an overriding priority. BGF looks for management teams with a good track record, a proven business model and a desire to grow. BGF will also look at the market in which the business operates and the product or service offered. It is important to understand the business’ competitive advantage and how sustainable that is.

–  –  –

The private sector: Octopus Investments Whilst the costs of doing due diligence, desire to reduce risk and secure larger overall returns has driven many venture capital companies towards increasingly large deals, one that continues to address the SME funding gap is Octopus Investments. The Ventures team at Octopus currently has a portfolio of some 40 companies, which include a number of well-known highgrowth businesses such as Zoopla, Calastone and Swiftkey. Octopus currently has £3bn assets under management and is the largest manager of Venture Capital Trusts (VCTs) in the UK.

George Whitehead (also Angel CoFund founder) is a member of the Ventures team at Octopus.

Demand for investment is clearly high:

In the course of a year, the team at Octopus will probably review more than 2,000 business plans. However, we only end up making eight to ten new investments a year, and these are generally in companies that have been referred to us through our network of contacts, in particular the group of seasoned business professionals and entrepreneurs (Octopus Venture Partners) who invest alongside us.

We are dealing with companies worth £3m to £10m, but trying to build them up to be worth more than £100m. That’s not easy! So we will underwrite the deal initially, but always look to syndicate with our Venture Partners – it’s a really good way of testing whether we are backing good quality companies, and for businesses who pitch, their final hurdle is always to present to these really senior guys, who can help to provide the know-how and contacts these companies will need to support their growth.

How does Octopus justify investing relatively modest amounts of money into businesses where

Pages:     | 1 |   ...   | 12 | 13 || 15 | 16 |   ...   | 29 |

Similar works:

«Discuss this article at Jt: http://journaltalk.net/articles/5503 Econ Journal Watch, Volume 3, Number 1, January 2006, pp 73-87. INTELLECTUAL TYRANNY OF THE STATUS QUO FOLLOW-UP In Defense of the Real Bills Doctrine PER HORTLUND * Comment on Richard Timberlake’s article in the August 2005 issue. For over seventy years, the question of what caused the Great Depression in the United States (1929–1933) has been one of the most debated economic issues. Since Friedman and Schwartz (1963), the...»

«Sermon outline and notes prepared by: Pastor Stephen Felker Swift Creek Baptist Church, 18510 Branders Bridge Rd., Colonial Heights, VA 23834 11/26/06 I Thessalonians 5:18 “Being Thankful in Every Circumstance” Intro. Rudyard Kipling, author of The Jungle Book, was a great British author in the late 19th and early 20th centuries. He was very famous and made a great deal of money at his trade. A newspaper reporter came up to him once and said, “Mr. Kipling, I just read that somebody...»

«Journal of Financial Economics 49 (1998) 283—306 Market efficiency, long-term returns, and behavioral finance Eugene F. Fama* Graduate School of Business, University of Chicago, Chicago, IL 60637, USA Received 17 March 1997; received in revised form 3 October 1997 Abstract Market efficiency survives the challenge from the literature on long-term return anomalies. Consistent with the market efficiency hypothesis that the anomalies are chance results, apparent overreaction to information is...»

«Household Welfare, Investment in Soil and Water Conservation and Tenure Security: Evidence From Kenya Jane Kabubo-Mariaraa, Vincent Linderhofb, Gideon Krusemanc, Rosemary Atienod and Germano Mwabue a Corresponding author: School of Economics, University of Nairobi. Kenya. Email: jmariara@uonbi.ac.ke b Institute for Environmental Studies (IVM), Vrije Universiteit, Amsterdam, the Netherlands. c Agricultural Economics Research Institute (LEI), the Hague, the Netherlands. d Institute for...»


«forthcoming, JEP: General MUSIC, PANDAS, AND MUGGERS: ON THE AFFECTIVE PSYCHOLOGY OF VALUE Christopher K. Hsee and Yuval Rottenstreich Center for Decision Research The University of Chicago Graduate School of Business Address correspondence to: Christopher Hsee or Yuval Rottenstreich University of Chicago Graduate School of Business 1101 East 58th Street Chicago IL 60637 Email: chris.hsee@gsb.uchicago.edu or yuval.rottenstreich@gsb.uchicago.edu 2 Abstract We investigate the relationship between...»

«Effect of Performance-Based Budgeting to Effectiveness of ControlA Study Case at Indonesia’s State University Habiburrochman, Amalia Rizki1 This study aims to examine the effect of performance-based budgeting to the effectiveness of the controls which include financia control effectiveness and performance control effectiveness at Airlangga University. Study sample was Dean and Vice Dean of finance affair at the University of Airlangga. Methods of data collection were conducted by distributing...»

«RESEARCH EVIDENCE ON THE CYFI MODEL OF CHILDREN AND YOUTH AS ECONOMIC CITIZENS research and policy Research Evidence on the CYFI Model of Children and Youth as Economic Citizens 2013 CSD Research Review No. 13-04 Campus Box 1196 One Brookings Drive St. Louis, MO 63130-9906  (314) 935.7433  csd.wustl.edu This paper was made possible with the generous financial support of the Citi Foundation Research Evidence on the CYFI Model of Children and Youth as Economic Citizens 2 Conceptual...»

«What’s driving the Chinese consumer April 2016 Confidence keeps rising among the country’s consumers, despite economic headwinds—but just what they are buying (and where and how) is evolving rapidly. Companies should pay attention. The Chinese consumer has become much more health conscious and more focused on value—although that doesn’t mean they want cheap products. On the contrary, a new survey by McKinsey principals Fang Gong and Daniel Zipser finds that Chinese consumers are...»

«Manchester Business School Research Seminar – June 18, 2008 STRATEGY AND STRATEGIC MANAGEMENT ACCOUNTING: AN INVESTIGATION OF ORGANIZATIONAL CONFIGURATIONS Authors: Cadez Simon Faculty of Economics University of Ljubljana Kardeljeva ploscad 17 1000 Ljubljana Slovenija E-mail: simon.cadez@ef.uni-lj.si Guilding Chris Centre for Tourism, Sport and Service Innovation Griffith University Gold Coast Campus PMB 50 Gold Coast Mail Centre Queensland 9726 Australia E-mail: c.guilding@griffith.edu.au...»

«The Sustainable Energy for All initiative brings together top-level leadership from all sectors of society, drawing on the global convening power of the United Nations and the World Bank and combining the efforts of hundreds of stakeholders from around the world. Private Sector 1. José Manuel Entrecanales, Chairman and CEO, Acciona Chief Executive Officer and President of Acciona SA. Former Chief of International Operations of Enel SpA. Has also served as Chief Financial Officer, President,...»

«SMALL BUSINESS GROUP (2-50 employees) EVIDENCE OF COVERAGE AND PLAN DOCUMENT A complete explanation of your plan HMO (Plan [ ]) Important benefit information – please read Dear Health Net Member: Thank you for choosing Health Net to provide your health care benefits. We look forward to ensuring a positive experience and your continued satisfaction with the services we provide. This is your new Health Net Evidence of Coverage. If your Group has requested that we make it available, you can...»

<<  HOME   |    CONTACTS
2016 www.dissertation.xlibx.info - Dissertations, online materials

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.