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1. 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

2. 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 Hodgson
Geneva 2010

3. > Market consolidation
> Market expansion
> Market penetration
> Product enhancement
> Sales & distribution
> Product development
> Marketing & research
> Prototyping
> Market definition
> Innovation & R&D
Tier 0 Tier 1 Tier 3 Tier 4 Tier 5
Tier 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 Failure
HIGH LOW
Commercial
Value
R&D
Angels
/3F’s
Seed
VC/IIF
VC/
Expansion
IPO/MBO
/Trade Sale
Sources
Of 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

4. 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 Hodgson
Geneva 2010

5. 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

6. 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 Hodgson
Geneva 2010

7. 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

8. 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

10. 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

11. 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

12. 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

13. Some concrete approaches
 Turkish critical monitor firm
 Argentinean Core Security
 Armenian ICT companies
 Chilean salmon producers
 Mexican unmanned plane
Bob Hodgson
Geneva 2010

14. 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

15. Business model and revenue sources
 Selling the product
 Providing a service and support
 Replacement materials market
 Upgraded versions and revenue
Bob Hodgson
Geneva 2010
GRIMREAPER

16. 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

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