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Early Stage Finance and Knowledge Intensive Companies
Intellectual Capital a key driver for accessing finance
Andrea Di Anselmo - META Group
6th WIPO Forum on Intellectual Property and SMEsCardiff, September 10-11 2008
O Knowledge Intensive Companies
O What investors are looking for?
O Intellectual capital: key driver for accessing finance
O Case Studies
Knowledge Intensive Companies
Knowledge Intensive Companies (KICs). They are small in numbers but cover a critical role
O strongly affecting employmentO playing an increasingly active part in Global
Markets and Value Chains: initiators
Knowledge Intensive companies
O Quality and quantity employment: 2% of new companies produces 50% of new employment in Europe and 70% in USA
O Dynamism of the economy: Nokia alone has changed Finland physiognomy and perception
O Creative destruction: today AT&T only exist as a brand
O 75% of Fortune 500 did not exist 25% ago
KICs
3 Key issues
1st “issue”their value (assets) is mainly represented by Intangibles
O The research(ers) capabilities – human capital
O the technology (Knowledge) embedded andO the possession of “IP products”
2nd “issue”
Knowledge intensive companies need (a lot
of) money!
3 Fs (Fools/Founders, Family, Friends) are
not enough!
3rd “issue”
Research (knowledge) + Finance = Innovation ?
What are the ways and means to enhance cooperation between research and finance in order to efficiently support innovation?
V/S
What are the ways and means to enhance cooperation between entrepreneurs, research(ers) and finance …..?
KNOWLEDGE INTENSIVE IDEAS
EARLY STAGE RISK FINANCE
Global Value Chains
Global Markets
Investor Readiness
IC Management
New KICs (CONSTANT FLOW OF INDEPENDENT IDEAS
CONCEPTS, PRODUCTS)
Seed Capital
… Finance is not enough
o Importance of investment readiness interventions
o Mentoring and training
o Acceleration
o Internationalisation – cross border
o The added value of business angel investment
And, moreover,
investors are looking for…
O Balanced & committed Management Team
O High growth potentials
O Sustainable Business Model
O Suitable strategies: with deliverable goals
… a clear way out strategy
….presence of a strong strategy for intellectual capital - IC Ready – Investor ready
Business Idea Recognition
Knowledge Intensive Company!
Markets foresight, trend researchIdentification of market trends
Trainings for entrepreneurs and enterprisesSkills and abilities needed for successful businesses
Business shapingMentoring – expert support in feasibility study, business plan, etc, preparation
FacilitiesLocation / space, equipment and services for getting started and keep going and growing
Access to financeIdentifying the most appropriate financing for enterprises (Business Angel Network, proposals etc)
Entrepreneurial cultureInitiatives, creativity, entrepreneurial spirit stimulationHow to become an entrepreneur
Business PlatformPartnership development, Technology transfer, entering into markets
A long, challenging and exciting walk, IC being the first step
Intellectual Capital Readiness
understand, value and protect intangibles
Intellectual capital is “knowledge” that can be exploited for money-making or for creating value. combinations of human capital, instructional capital and individual capital employed in productive enterprise are usually what is meant by the term, when it is used to actually refer to a capital asset whose yield is intellectual rights.
Due to their industry focus, the term "intellectual capital" is employed mostly in information technology, innovation research, technology transfer and other fields concerned primarily with technology, standards, and venture capital.
(Source: Wikipedia)
Intellectual capital V/S Intellectual property
Intellectual Capital = Explicit + Tacit KNOWLEDGE
Explicit
USEFUL IDEA – Patent
ORIGINAL EXPRESSION - Copyright
DISTINCTIVE IDENTITY (Physical – Shape, Non Physical - Logo)
Tacit
PEOPLE!
What, we, investors look for
O Monitoring of competitive products/technologies/patents
O Correctly employing the legal tools in protecting products/technologies
O Ensuring key resources (including people) are valorised and protected
IC Readiness of intangibles in KICs
O KICs require attention in the initial stages to assure an adequate development and protection of their product/knowledge
O The commercial viability of an IP product resides in its actual implementation on the market place requiring:
O the entrepreneurial team must know how to manage the intangible asset by employing the legal tools protecting the innovativeness of the idea in order to ensure the exclusive right to its commercially exploitation
O IP protection will augment early stage investors’ interests in a particular KIC by providing further, strong, guarantees on future returns on investments
Investment Readiness
Easy a Pro Inno Europe Inno Action
Provides a dynamic framework for cross-border investing, enabling seed investors and investment ready internationally focused businesses to come together
www.earlystageinvestors.org
The role of intellectual capitalkey driver for accessing finance
Case Studies
Case A)
O Biotech spin-off from the University of Ferrara
O Research and development of drugs for pain: treatment of pathologies as neuropathic pain
O Medical (biotech) research requires long development times (10-15 years) with high costs (€ 10-15 million)
O IP protection is thus one of the most decisive factors for the success of a spin-off
Case A)
O The University of Ferrara has given : 5 patents and as many active principles; 3 full time researchers; 4 researchers on a contract; 3 high levels scientific advisors
O Funding: the company has received €3.2 millionO Financial resources needed for the different development phases:
1. Phase 1 (toxicity verification) €6 million
2. Phase 2 (efficacy verification) €12 million
3. Phase 3 (clinical experimentation) €20 million
O The team is composed by researchers who are necessary for going on with the research and
they are always stimulated to start a new project…..
O Managerial skills are lacking ….
Case A)
O The IPR was secured by international patents, only critical element was evaluation ……..
BUT
O Where is the needed “know how” to go in to the market? (managerial or technical skills?)
O How long does it take to gather this knowledge on the market?
O How to solve this issue?... Lock in …. Confidentially agreement
Case A)
Then…when managing
O IP protection involves constant monitoring on the state of the art of alternative products and surveys on the IPRs of other pharmaceutical companies
Case A)
The start up company has developed a new Web service (on line password manager) on the basis of new solutions, covered by a US patent and by copyrights, for solving a clear market needs.
The team is composed by a married couple:
– He has the technical know how
– She has the vision and the market approach
– They are both involved in the project and company creation from the beginning
– They shared all the efforts and results ….
Case B)
O What will happen if they divorce?
O Who is the “real” knowledge owner?
Intellectual property is there ….
But
people for developing the service are necessary
Case B)
Case C)
O ERP Systems for SMEs
O ERP built exclusively for SMEs (not a down size of larger products)
O It is Software after all!
O Protection through lock in ...
An industrial spin off is developing IT collaboration platform for companies
In the IT sector the patentability is still a big issue ….
… How to solve this issue
Case studiesCase C)
Terms & Definitions (Community Guidelines -2006/C 194/02)
Risk capital means equity and quasi-equity financing to companies during their early-growth stages (seed, start-up and expansion phases), including informal investment by business angels, venture capital and alternative stock markets specialised in SMEs including high-growth companies (hereafter referred to as investment vehicles);
Venture capital means investment in unquoted companies by investment funds (venture capital funds) that, acting as principals, manage individual, institutional or in-house money and includes early-stage and expansion financing, but not replacement finance and buy-outs;
Terms & DefinitionsEarly-stage capital means seed and start-up capital;
Seed capital’ means financing provided to study, assess and develop an initial concept, preceding the start-up phase;
Start-up capital’ means financing provided to companies, which have not sold their product or service commercially and are not yet generating a profit, for product development and initial marketing;
Expansion capital’ means financing provided for the growth and expansion of a company, which may or may not break even or trade profitably, for the purposes of increasing production capacity, market or product development or the provision of additional working capital;
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