WITHOUT LOSING CONTROL OF THE INVENTION
IDC Commercialisation Manger - Troy White
ABC Onlines Catapult Website Article
Raising money to develop a new product is one of the more difficult challenges facing entrepreneurs and small businesses as they start to commercialise their intellectual property. Its often a catch 22 situation were you may need additional funds to complete testing, conduct market research or even build a prototype but without these things in place, potential investors may perceive this initial investment as too risky.
|Rule #1: Sweat Equity is the best start up capital|
The best businesses in recent entrepreneurial history are those that have been started with little or no money. Dell Computer, MicroSoft, Apple, HP and tens of thousands of others started in dorm rooms, tiny offices or garages. There werent 100 page long business plans. In all of my businesses, I started by putting together spreadsheets of my expenses, which allowed me to calculate how much revenue I needed to break even and keep the lights on in my office and my apartment. I wrote overviews of what I was selling, why I thought the business made sense, an overview of my competition and why my product and/or service would be important to my customers, and why they should buy or use it. All of it on a piece of yellow paper or in a word processing file, and none of it cost me more than the diet soda I was drinking while I was writing it up.
I remember the foundation for each of my businesses. MicroSolutions was very simple. To use microcomputers and software to help our customers become more productive, profitable and gain a competitive advantage. AudioNet, which became broadcast.com was simple as well: use the internet to enable real-time, worldwide communications of entertainment and business applications. HDNet is to create great entertainment, originated in High Definition format to allow our distributors to compete for the highest margin customers.
|"The Virtual Company"
Professor David Nicholas MBE
David Nicholas was a brilliant innovator and a
tireless promoter of the long-term potential of
innovention a term he introduced to link
invention with innovation. David Nicholas pioneered The Virtual
Company concept and has increased the national inventor /
start-up conversion rate for turning incredible ideas into
credible businesses by a factor of six. A virtual company is
formed when a team of experts work together with a lone inventor
to bring an invention to market. The experts work for no fee, but
in exchange for virtual shares in a virtual company, which
convert into real shares when funds are secured.
The (Kingston) Enterprise Exchange was proud to employ David from September to December 2004. Sadly, David died on 17th December 2004, leaving a wife and three grown-up children. He died at his desk doing what he enjoyed, helping inventors.
|The Venture Capital Paradigm
of Computer Science
For many years, nearly every high-technology start-up has been built on the dream of raising millions of dollars of venture capital, working frantically for two to three years to build value, then going public or selling the venture for a vast amount of money. We call this the Venture Capital paradigm, and argue it is unrealistic for aspiring UK entrepreneurs, such as university staff and students.
Our Virtual Company paradigm encourages aspiring entrepreneurs to identify a moneymaking idea, assemble a team, explore new markets and grow the business organically. We teach (and practice) that while investment, IPO, trade sale and other forms of harvest are desirable outcomes, entrepreneurs should not overlook the option of creating durable businesses that they intended to operate personally for a considerable part of their career.
Although not appropriate for all new ventures, we believe the Virtual Company is a viable option in the UK for many entrepreneurs who are seeking to create high-technology ventures. We also encourage technologists to consider founding new ventures as a natural, early and career-boosting step, even if their ultimate aspirations are to work within established businesses.
|"Virtual Company Survival
Company Survival Toolkit" includes several small and
versatile financial tools which make a pivotal difference as to
whether or not a research idea or invention based business
There are many unexpected and unknowable pitfalls ahead of a successful commercial science and technology business development. Not least is its financial foundations.
A new and optimistic inventor / entrepreneur may be forgiven for being completely uninterested in "survival issues" but should note that some 90% of serious straightforward (ordinary retail, service & trade) new business projects fail every 2 years. Half of all British companies are wound up every 3 years. Furthermore in the real world of genuine and authentic independent scientific & technical invention, original authorship and development it is much tougher.... Only 0.2% of private inventors (1 in 500) even recover their patenting fees... let alone development costs..
In reality therefore new research or invention led enterprise development is such a high risk that any method which improve the survival odds for new start-up ventures' deserves closest of study.
The following are practical financing methods culled from retrospective analysis of working over 40 years of INDEPENDENT new technology enterprise development:-
Thrift, austerity with steadfast courage and cautious optimism are not counsel of defeat but a formula for success !
Type #1 "Own Resources" If at all possible, ones own savings and wages with interest-free loans from "friends and family", formal grants and "soft loans" are the best way of funding new research or invention led start-ups.
Type #2 "Salary Recycling" ... As old as self-employment.. "ploughing back wages into the business"
Type #3 "Virtual Stockholding"...... As per the late David Nicholas's "Virtual Company Paradigm":- "A virtual company is formed when a team of experts work together with a lone inventor to bring an invention to market. The experts work for no fee, but in exchange for virtual shares in a virtual company, which convert into real shares when funds are secured"
Type #4 "Smart Money Investment" is where an investor augments a substantial financial investment along with contributing time such as a professional skill or trade. When as a leading investor it will be typically in the role as "finance manager". Alternatively such "smart money" may come from an early user and/or enthusiastic client/customer making an advanced payment for anticipated first use.
Type #5 "Operating Lease" Investment of essential materiel in which a priming investor undertakes to not hand over cash but instead purchases or supplies specific items of key enabling capital equipment on loan in return for a promise of equity ... The specific plant or equipment remains the property of the lender so that should the project fail to meet promises the investor loses only the market depreciation if resold. "Free" informal use of land, office premises and other assets during start-up would be a typical example of this..
Type #6 "Asset Mortgaging" is where a required cash investment is converted into a purchase from the development company of an existing asset which is granted a Type #5 Operating Lease whereby the asset is legally owned by the buyer but leased to the project company for the duration (with the tertiary benefit of being immune to loss through corporate insolvency and receivership).
Type #7 "Celebrity Endorsement" this concept is such as an open letter or memo signed by the Chairman of Household Name ABC Inc. stating "if the proposed zzzzz can deliver yyyyy as you claim my firm would be interested in purchasing the idea / product".
Simply the best. Everything else is second best.. But works only
for plutocrats and millionaires... Despite the general claims of classless
entrepreneurial opportunity, over 85% of North American
deka-millionaires were born wealthy..
Type #2 This can work well with self-employed sole traders and partnerships e.g. the typical lone inventor.... Especially when working under formal grant regimes....
First used by us in a U.K. government public funded R&D project in 1981. N.B. There may be hidden tax liabilities created though building capital assets... Professional advice is necessary..
Type #3 "Virtual Stockholding" is our initial "Angelsweb Innovation Limited model".
Types #2 & #3 above are called by the Americans (rather coarsely) "Sweat Equity"...
Type #4 "Smart Money Investment" This is often a highly successful patronage mode for starting up new small businesses of any sort.
Type #5 "Material Investment" - the lend-lease investment option. This is an extremely practical and useful mode... it is very common for a wealthy individual to loan a trusted friend or family member; land, materials or tools in order to get some project started.. Similarly a University providing academics with "un-billed" ad-hoc use of premises and resources.
Type #6 "Asset Mortgaging" an Asset Buy Out is the old pawnshop model... re-vamped to the present.
In principle the "investment options" Types #4 - #6 represent substantially lower risk for the lender/investor(s) ...but even so, even such attractive investment opportunities, will not guarantee a project an instant solution to cash flow problems..
Type #7 "Celebrity Endorsement".. e.g. The CEO of United Global Airways says "our company needs and would purchase zillions of this product if it can be produced exactly as promised" A few such "celebrity endorsements" can be as useful to an inventor as a winning lottery ticket! The British TV program "Tomorrows World" once performed in this role.
New enterprise is so risky "that it is generally not worth attempting". If it were otherwise banks and financial institutions would frequently loan inventors and entrepreneurs a little of what they need..
Early cash for developing even simple new ideas and paying professional fees for patenting is very scarce..
Rationally explaining mechanisms for "where the money comes from" is the primary obstacle to new ventures..
In my opinion the above are a formalization of the subtle but crucial technical differences in successful small family enterprise and agricultural business practice which now make these sectors observed and reported by governments here and around the world (without fully understanding the mechanisms) as the most effective engines of successful new economic growth....
What is crucially different is that these practices all demand high standards of ethical character and probity and levels of informal kindness and personal trust which are incompatible with and effectively eradicated by existing modal norms of competitive and mercenary business relationships.
It is thus possible to put in an advertisement here for new radical wealth creating business organisation and cultures, motivational assumptions and participatory structures - at which Angelsweb Innovation is a pioneering example.
Scams To Watch Out For
"....there are thousands of fraudulent companies and fraudulent middlemen who make their living scamming"
Scams To Watch For (If you are seeking investment)
If you use a planning to deal with a Venture Capital broker or a middleman to try find you an investor or a venture capitalist, you may be asked to pay a large up front fee in advance before any financing has been obtained. The fee may be called a processing fee, finders fee, or credit application fee. In some cases you will be told the financing is in place in which your asked to pay for insurance to insure the loan or the financing. This scam is known as the insurance fee scam. Prior to being told about the up front fee you will be put through an exhaustive array of frustrating paper work which will include credit applications, the business plan, references, co-signers, numerous interviews etc..Even if you are told the fee is completely refundable you may very well have trouble collecting the fee (through the court system) if the middleman has no assets.
Just know in this scenario there are thousands of fraudulent companies and fraudulent middlemen who make their living scamming for these processing fees. The agreement between you will be so fine that you may find yourself in the cold as a result of some unconditional clause in the contract. There are hundreds of reasons why you could be denied independent financing under the contact.
Scams To Watch For (If you are an investor)
There are endless situations where investors have been scammed lending money to new ventures that were nothing more than fraudulent paper corporations with no real foundation. The money gets invested into a corporation, the directors abscond with the money, and bankrupt the company. The same scam can apply to fraudulent real estate deals. We would suggest that all investors conduct extensive due diligence and investigative research before extending money to any individual or company. It is important to look at the company invested but most of all the individuals who are truly behind the company. Do these individuals have criminal records? Have they been defendants in law suits? Is there a history of bankruptcy where the individual formed a company that was shortly bankrupted after being financed by investors?