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Technology Description (format)-1 week
1. Focus on your core technology2. What makes your product or services work.3. Key components needed4. specialized knowledge (experience and skills
involved and regulations that may govern the use of the technology to deliver the product/service)
5. R&D plan in the near future/trend (how, how much?)
Current trends of IT in 2011
Malaysian RMK-9 (refer on my take of What’s Hot 2010)1.Information Security2.E-Commerce3.Cloud Computing4. Development of Application & Content5.Open Source
De-mystifying tools/technology/software you are using
• True that some are reliable/superior than others
• What matters is the real execution of the task• Basically – if it works for you than use it.
Example- Ruby on Rails- the web application framework.
Software architecture
Tire swing analogy on application development
Application Architecture
• is commonly used for the internal structure of an application, for its software modularization.
• Applications Architecture is the science and art of ensuring the suite of applications being used by an organization to create the composite application is scalable, reliable, available and manageable.
•
• One not only needs to understand and manage the dynamics of the functionalities the composite application is implementing but also help formulate the deployment strategy and keep an eye out for technological risks that could jeopardize the growth and/or operations of the organization.
• Front-end- the interface, the all things are nice and beautiful
• Back-end-database, application, the ugly side, complex
Technology Valuation AnalysisWhat will be the value of your technopreneurship.
The fruits of your labor are for :(i) consumption of the society at large(ii) will need to be committed to 3rd parties in some form or other
usually through(iii) some kind of technology licensing arrangements via(iv) partnerships,teaming arrangements or outright sales and purchase.
Types of Licensed Rights in Technology
(i) Business Transactions – outright sales and assignments
(ii) Product Licensing - duplication the making of some device, system
or service that has already been completed and proven by the seller.
(iii) Technology Rights -is used to designate transactions for pre-
commercial designs and data
Sellers and Buyers in Technology Licensing Transactions – TRADE
• The license is the contract between the Seller and Buyer – this conveys technology rights from the seller to the buyer
• 4 Distinct Aspects– TR – Technology Rights
– R – Risk involved in the transaction
– A – Art of DealMaking
– DE – Deal Economics
What Accompanies The Deal
• Separate purchase agreements
• Employee agreements
• Services/consulting agreement
• Supply agreement -Non-disclosure agreement
• Equity Participation – could have incorporation and
shareholder issues
Technology Rights come in 3 forms of IP
• (i)Patents (ii)Trade Secrets (iii) Copyrights • Major Areas of Uncertainty:
• Assumption of IP protection
• Strength and breadth is uncertain
• Interpretation of claim language
• Validity of patent
• Different countries interpretation
• How secret is trade secret
• Risk of disclosure precludes protection
• IP protection is necessary but insufficient condition for value
Why is Technology Licensing Important
• What is R & D money buying, how do you justify the investment ?
• How about return to shareholders?
• Substantial portions of R&D has to be used thru partnership, teaming, merger, acquisitions and other relationships
• Involves technology being licensed, transferred, committed to 3rd party
• Product of R&D ==== Patent data in US in 2001 350K patents submitted, 170K granted
Technology Licensing Issues - 1
• Basic Principle in Technology Valuation - Forecast the future value of
operating profits and cashflow.
• When there is a history of sales , costs, and profitability the future
becomes more predictable.
• Is the past a harbinger of the future
• forecast the future value of operating profits/cashflows
• due diligence – confirm historic data , test hypothesis
• Absence of data prevents the rigid mindset that the future can be
determined by the past
Technology Licensing Issues - 2• your track record is in front of you
• forecast with no data
• in a sense is easier as start from scratch
• no baggage from the past
• prevents rigid mindset, paralyzing inertia
• wireless, biotech and ecommerce come with no track
record
• possible opportunities for failure/great success & progress
The Greatest Tech Story – The Internet Revolution
• “ Larry Roberts – Internet Pioneer
– Familiarity and Repetition creates assumptions about what is and is not possible
– Assumptions from History Automatically Do Not Become Facts ( .. they become superstition)
Six Situations of Technology Licensing
• Enforcement Licensing
• Opportunity Licensing
• Opportunistic Licensing
• Divestiture Licensing
• Partnership Licensing
• Startup Licensing
Pricing & Valuation
• Valuation is the direct output of valuation tools & methods
• Pricing is the internal & external communication of perceived value
– valuation is an opinion , pricing is an offer– pricing leads to negotiation, agreement and commitment– seller can establish lower price for quicker deal– no time – fire sale– lot of time, due diligence, marketing effort– technology ages like apple not fine wine– playing hard to get is a risky strategy– pricing – is a strategic issue– valuation – determines assets intrinsic value
• The Price – Arthur Miller play - The Price is nothing but a Viewpoint
SELLER AND BUYER PERSPECTIVE ON COST AND VALUE
Seller/Licenser ( Historical View )
$
Value
“Justifiable”Margin
Cost
For technology inventions, how would I even calculate such “cost” ?
Buyer/License (Future Review)
$
Value of “now”
Avoid IP Cost
Cost to do it myself
Value
Value
Value
Apples to Apples
Cost of 3rd
Party Alternative
Case A
Case B
Alternative Acquisition
Factors that affect final valuation
• Avoiding Startup Costs– Can pay more than what valuation indicates– Higher price to pay is still better than incurring startup costs
• Degree of Control– Minority interests are difficult to sell– There is a premium to be made for majority control
• Leveraged Buyout (LBO)– where majority of purchase price is generated from
company assets, recommended where there is low current and long term debt.
Case Study – What is this business worth today?
• Assume you have an opportunity to buy a small business which you know intimately and of which you can accurately forecast the company’s growth.
• Right now it is not profitable but with your expertise, you expect it to generate RM380K net cash flow over 5 years and have a networth of RM400k at end of year 5.
• Assume the acquisition is in 31st Dec 2007, you expect a return of 24% and the projected annual cashflow is as below: 2007 2008 2009 2010 2011Net CashFlow RM0K RM40K RM80K RM110K RM150K
Hint: Use Discounted Cash Flow for rate of Return of 24% ( Yr 1=0.806, Yr 2 = 0.650, Yr 3 = 0.524, Yr 4= 0.423, Yr 5= 0.341)
