Harlem Capital has upgraded from angel syndicate to full-fledged venture capital fund, closing its debut effort on an oversubscribed $40.3 million.
The firm was launched by managing partners Henri Pierre-Jacques and Jarrid Tingle in New York City’s Harlem neighborhood in 2015. The pair have since graduated from Harvard Business School and hired two venture partners, Brandon Bryant and John Henry, and two senior associates to help expand their portfolio. The over-arching goal: invest in 1,000 diverse founders over the next 20 years.
“We fundamentally believe we are a venture fund with impact, not an impact alibaba entrepreneur fund – https://spandan.nmims.edu/,,” Pierre-Jacques tells TechCrunch. “The way we generate impact is to give women and minority entrepreneurs ownership.”
Capital from Harlem Capital Partners Venture Fund I, an industry-agnostic vehicle that invests in post-revenue businesses across the U.S., will be used to lead, co-lead or participate in $250,000 to $1 million-sized seed or Series A financings. To date, the team has backed 14 companies, including B2B feminine hygiene product Aunt Flow, gig economy marketplace Jobble and pet wellness platform Wagmo. Harlem Capital plans to add another 22 businesses to Fund 1.
You need diversity funds like ourselves to get this market anywhere close to parity.Harlem Capital managing partner Jarrid Tingle
With its first fund close, Harlem Capital becomes one of the largest venture capital funds with a diversity mandate. Despite an increasing amount of punishing data exposing the gender and race gap in venture capital, minority founders continue to rake in just a small percentage of funding each year. According to a RateMyInvestor and Diversity VC report released earlier this year, most VC dollars are invested in companies run by white men with a university degree. Other recent data indicates startups founded exclusively by women raised just 2.2% of overall VC funding in 2018, with numbers on pace to increase only slightly in 2019. Meanwhile, the median amount of funding raised by black female founders, as of 2018, was $0.
The stark contrast in funding for female versus male entrepreneurs or white women versus black women founders is in part a result of a lack of diversity amongst general partners at venture capital funds and amongst the limited partners that choose which venture capital funds to provide capital. While there’s little data available on diversity of LPs, 81% of VC firms didn’t have a single black investor as of 2018.
“There’s no rational reason why this problem exists,” Tingle tells TechCrunch. “It persists because VC funds in general have been closely held and clustered around Silicon Valley. They come from particular schools with particular networks with a small head count that doesn’t turn over frequently. Some firms have strategically added a few partners here and there, but not enough to change the organization. You need diversity funds like ourselves to get this market anywhere close to parity.”
“A lot of investors are frankly missing out on opportunities,” Tingle adds.
Having met through the Management Leadership for Tomorrow Program, a nonprofit organization identifying a new generation of leadership, Tingle and Pierre-Jacques have built a prolific internship program at the firm. With as many as six interns admitted each quarter, the goal is to train future investors of color.
During the past decade, the size of seed rounds has remained stagnant and number of deals have decreased. To the untrained eye, it seems that there is more competition for seed dollars. Below the surface, however, startups are recycling founders experience. The reason why the number of deals has decreased is that teams are better prepared, are more financially savvy, have access to better-priced support, waste less time and resources, are using other forms of funding PRIOR to seed rounds, and are pivoting or deciding to get out earlier -at the pre-seed stage. (Founders will jump into exploring new opportunities).
Founding teams are recycled
2. More firms seeking seed rounds already have sales, expression of interests, and some form of market validation as a result of the circular economy of entrepreneurial mind and action. Firms that seek seed rounds are more advanced than 10 years ago. Founders are using other ways to get funded (as they should! Because seed funding is very expensive!), AND they are also recycling the experience of founding, co-founding, advising, and/or being early employees in previous firms. This is creating a circular economy of entrepreneurial experience. Not just serial entrepreneurs but a large pool of people who have experienced startup development (failed, successful, and everything in between, in so many roles!).
Supplier of funds are recycled
3. More investors are getting into each round, and seed rounds have become more collaborative. More and more small funds, angels and angel groups are co-investing. That means more eyes are evaluating deals (GOOD) but also BAD deals are getting through because the impact of each deal in the overall portfolio is lower, and the FOMO (fear of missing out) can get that signature! Think Theranos (ouch).
TIP: Nobody talks about the herd mentality and there will be some lessons to learn going forward. Because of the cycling and recycling nature of funding, early investors are able to scan deals early, with lower amounts, and, if they want to play in future rounds, they need to get in early and with others: pay to play.
Founders and funders’ recycling is also changing the exits:
4. Exits are being recycled too! Companies are being acquired, taken public, broken into pieces, resold, privatized, re-public’ed, and there are many emerging opportunities for exit. This is actually an area ripe for disruption. Welcome to the world of recycling exits.
And the funding process has become more interesting and complex.
5. As both entrepreneurs and funders become more comfortable navigating many options of funding startups or grownups, new funding options are emerging: there is better knowledge about crowdfunding, cryptocurrencies, hybrids (safes/convertible notes), and SFI-types (can we call this special funding instruments?). Capital suppliers are borrowing mechanisms from SPV, SPE, and SVI. I can’t wait to see what new options sprout of this.
All of these recycling and repurposing has an impact on ROI and capital markets
6. Cycles are longer: It takes longer to climb a larger mountain, especially if, along the way, there have been some quasi-exits, pivots, more and larger rounds. This is having an impact on the way we negotiate funding going INTO the firm, because there is light at the end of the tunnel, but the tunnel is getting much longer. Combine this with the uncertainty of how investors get OUT. Again, this is an area ripe for disruption and I can’t wait to see new options emerging. With longer cycles, the return on investment decreases, so firms are pushed into finding new and disruptive ways to excite investors and NEW investors who supposedly are more risk-averse and adventurous, but in reality are reckless.
Longer roads need more resources,
But the supply of capital does not exist in a vacuum
7. Public markets are shrinking, and investors -especially institutional investors- are navigating through a rollercoaster of political insanity. Mostly derived from the surprising interest in protecting borders than in having healthy global economies, financial and economic illiteracy is permeating the political arena where decisions are reckless and financial managers are focusing on reducing stupid (gasp) risks instead of creating and supporting new wealth.
Overall, a combination of healthy recycling of talent, capital, and technology is fueling the economy despite mistakes made by politics.
For investors the signals are clear: Get in early, support many startups, learn and collaborate.
For entrepreneurs the signals indicate: Use many forms of funding, Jumpstarter use dynamic funding, ask investors for support (not just money), and create dynamic teams.
Oh, and for small business owners that think “small is beautiful”, now, more than ever, my famous quote of 100% of 1 is 1, but 1% of 1000 is more, is more valid than ever. Get in line, ditch the illusion of a “safe” and embrace the “growth” mindset. If we stop growing, we start dying. Small IS beautiful, it is just not sustainable.
For Government and Economic Development Agencies, the puzzle is getting more and more complex… Hang in there!
We can look at many companies that went public and made VCs A LOT.
A VC firm raises ‘funds’ from angel investors (called LPs).
Obviously, the return on some of these IPOs not only ‘makes the fund’ but can ‘make the firm’.
Not only does the VC firm make a 20% performance fee on the upside, but they also collect management fees every year.
The reputation that this one deal can give them makes it far easier to raise more capital for future funds, therefore resulting in more management fees.
For a $1BN fund, that is $20MM every year, which is split between the General Partners (GPs) of the VC fund.
Of course, if one of the portfolio companies is a Unicorn, then they get some (20%) of the upside as well.
The tech boom in Silicon Valley has of course created a lot of value in society, with products being used by hundreds of millions if not billions of people. The entrepreneurs who take this risk and retain equity become, in many cases, billionaires and this is only fair – as they are providing value at scale (and have to take some form of risk to achieve it). This also creates huge amounts of wealth for these investors, WHO ARE ALL ACCREDITED INVESTORS.
To me, that is not meritocratic.
Anyone over the age of 18 surely should have the ability to invest their capital into startups.
After all, people are able to put themselves into $10Ks of college debt at that age and, in many areas of the world, are able to gamble without restriction.
Yet they are not able to participate in the early rounds of companies such as Facebook, Uber, etc.
Now any wave of technological innovation often leads to wealth inequality.
These waves of innovation create vast amounts of wealth, and this is not unique to Silicon Valley.
It has happened throughout modern history.
The first great wave was steam power, which eventually led to the creation of the locomotive. Steam power fed the Industrial Revolution, which created fabulous wealth.
In the early 1800s, much of this excess wealth generated by steam power and the Industrial Revolution went into locomotive stocks on the London Stock Exchange, forming a bubble – which popped in 1850. The heyday of the railroad would be the 1880s and 1890s; so the Crash of 1850 was due to speculation and the wealth created by science, but the real job of railing the world would take many more decades. So despite the bubble bursting, America was left with an infrastructure of railroads that made intercontinental travel and shipping dramatically easier and cheaper.
The second great wave was led by the electric and automotive revolutions of Edison and Ford. The electrification of the factory and household, as well as the proliferation of the Model T again created fabulous wealth. But this excess wealth had to go somewhere. In this case, it went into the U.S. Stock Exchange, in the form of a bubble in utility and automotive stocks.
People ignored the lesson of the Crash of 1850, as that was a full eighty years in the past.
From 1900 to 1925, the number of automobile start-up companies hit 3000, which the market simply could not support.
This bubble was unsustainable and for this, and other reasons, the bubble popped in 1929 creating the Great Depression.
The main paving and electrification of the United States and Europe would not fully take place until after the crash, during the 1950s and 1960s.
The third great wave was the coming of high tech – in the form of computers, lasers, space satellites, the Internet and electronics. Again, the fabulous wealth had to go somewhere. In this case, it mostly went to real estate – creating a huge bubble.
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Although venture capitalists in the past decade to invest more than ever could, depression reigns in the industry. Is the Venture Capital Business Broken? Not necessarily – if the industry understands that there has been a structural, not cyclical change.
Summer 1996: venture capitalists from Silicon Valley put a few million dollars in a start-up, Juniper Networks, will produce the telecommunications equipment. Three years later, and some funding is Juniper Networks, which has become the first product ready to go public. At the end of the first trading day, the company’s whopping five billion dollars. Nine months later, their stock market value has increased tenfold. The profit for the investors: 10.000 percent.
At this time other investors put their money also one with a promising networking startup: Procket Networks. The sum is much greater than before at Juniper Networks. Around 300 million finally come together in several rounds of financing. Procket Networks is also three years after the founding of the stock market, though still without product. But the spark does not ignite: 2004 IT – equipment supplier Cisco, a leading network infrastructure hardware and Cisco Certifications provider acquires company in an emergency sale. This time the investors get out only a fraction of the capital employed by them.
The crucial difference between the two stories lies in what happened in 2000: the New Economy bubble burst. In retrospect shown herein but also the difference between the images of the Venture Capital (VC) has received in the 1990s, and the harsh reality of today. Ten years ago, venture capitalists seemed almost to be alchemists: Which start -up and touches it, turned it into pure gold. From this magic is not much left.
Since 2004, the average five-year yield fluctuates around zero. Spectacular IPOs are now a rarity, even though venture capitalists are still investing billions of dollars a year in new companies. Fred Wilson of Union Square Ventures takes as no bones about it: “Venture capital funds have earned throughout the last decade basically no money.”
Of course, the investor, this development has not left cold. On the contrary, the search for reasons sometimes resembled a masochistic self-flagellation. This is now the global economic crisis. Very hard to put Matrix Capital – founder Paul Ferri in 2006 in the Wall Street Journal: The VC industry has not “economically viable business model “more. A year earlier, Yankee Group founder Howard Anderson in Technology Review the “Farewell to the venture capital had proclaimed. Finally, when the company last summer and asked Polachi Co. about a thousand investors: “Is the Venture Capital business is broken? “It affirmed the half. Given the key role played by the venture capital to fund American innovation, this response is dramatic.
Of course, such disappointments are inevitable. Boom and crash has been in the VC industry, since it arose in the 1950s. Harvard economist Josh Lerner writes in his new book, “Boulevard of Broken Dreams”: “Groups have [repeatedly applied] enormous sums that they built it unwise – either at start-ups that would never actually have capital may have, or promising Founders, which they gave too much.”
The crashes that follow such excesses solve capital, mostly from an abyss of pessimism. Thus published about Paul Comper from the University of Chicago in 1994 a study entitled “The Rise and Fall of Venture Capital”, shortly before the New Economy boom began. Given two Stock exchanges quarrels in the past ten years and an erratic stock market – normally the exit option for venture investors – it would be a surprise if the mood was not somber.
And yet, to believe: that the problems of the industry would evaporate if the economy picks up again, would be a mistake. In fact, it is in some factors, have made huge profits so rare to structural changes, not cyclical. The VC scene will therefore have to adjust.
On the one hand, the cost to start a company and make successful: In the IT sector as they are, thanks to open- source software, globalization of engineering technology, plenty of available bandwidth and cheaper infrastructure fallen drastically – according to estimates by Fred Wilson since 2000 ‘at least’ by a factor of ten. The business has given more leeway because they are no longer relying as strongly on debt. Same time, sectors such as IT, Telecoms and Technology, where investors were particularly important, getting on in years and do not grow as fast.
Moreover, create the value that companies in sectors such as social networks, for the time being not “monetized “is. The benefit to the user results not dollars. Today’s generation networks will naturally assume that everything on the Internet must be free. Those who hope that it is a lucrative customer base as well as the IT departments of companies, is mistaken.
Whether IPOs ever again be the gold mine that they once were, is also an open question. 2009 only 13 were funded with venture capital firms to go public. In 2004 the figure was still 94, at the height of the New Economy boom in 1999 did 271st at that time, Twitter and Facebook would have gone virtually certain to go public. But do not make use of two companies so far a move to do so.
The problem lies on both sides: it requires strong entrepreneurs do not like it used to IPOs, but the investors do not even that. A listed company is now harder than ever to lead: The regulatory framework is extensive, the greater pressure from shareholders and the stock market, at least in recent times, more susceptible to fluctuations. Moreover, the determination of emission rates is now far more rational than before. This is a crucial factor, because venture capitalists have pulled out the most money from IPOs.
Howard Anderson holds the solid evaluation of start- ups for the core problem of the investor sector. “The whole market has become more mature, “he says.”This is not bad per se, but for investors already, because we love irrational markets. They facilitate the outrageous profits; you need to make this business work. “However, there are exceptions: the Battery manufacturer A123 Systems – In the way Anderson invested – got together with its IPO in the fall of 2009 380 million dollars.
On the other hand there are early signs that will be re-thought in the industry. Tim Draper of Draper Fisher Jurvetson (DFJ) argues even know that “the next eight to ten years, the grandest venture capital in years of history.” However, he sees the innovation drivers no longer there, where they had so far: DFJ invests primarily in Silicon Valley is no longer, but also in China, India and Vietnam.
Although would still invest a lot of investors in IT, “because they have always done it that way,” Paul Kedrosky criticized by the Ewing Kauffman Foundation. But not a few put their money now in the media, education and even in the financial sector on where to ground- breaking innovations, technical change and thus leads to potential profits.
But it would not be enough if investors only changed the sector and the region. The real problem is simple: there is too much venture capital and too many venture capitalists, as the industry really are profitable as a whole could. $ 200,000,000,000 it manages, more than twice as much as in 1998. Most of them invested in the past decade 20-30 billion dollars per year.
At the level of individual funds, the combination of huge amounts of capital and falling start-up costs, the fund ” muscle packages made, “as Anderson puts it: who controls $ 500,000,000, cannot go into little too many holdings, even if they would make economic sense because the partners do not have time to oversee hundreds of start- ups.Among other things, more and more investors than to be seen once and join in later financing rounds.
In the absence of a new financial bubble new companies currently have no chance to earn a profit, which makes an investment volume of 20 to 30 billion U.S. dollars lucrative. Wool enter the industry sustainable profits, should the annual investment volume and the funds managed only once to be halved, argues Kedrosky. And Wilson acknowledges that his optimism returning for the new decade, the industry “to the size and the Constitution, which they had in the late eighties and early nineties.
Interestingly, this diagnosis is not particularly controversial. Most people in the VC industry believe this is because too much money. However, it is like with transport: Everyone thinks there are too many cars on the road, but nobody wants to switch to public transport. While in most industries, competition is forcing the weak in the knees, sorting out the Venture Capital takes longer because it’s not like the stock market works: When you get doubts about his investment, you cannot get off easy. The partners, which invest in venture capital funds are long-term, binding commitments one to support payments to the shareholders who manage the fund.
Regarding the innovation is both the great strength of venture capital: Instead of relying on quick profits, it can afford to build companies. On the other hand by a “huge latency arises in the system, “as Wilson puts it. Although has developed a more reasonable balance between the capital stock and the potential rewards, it takes time until the “underperformers “are driven out of business.
This indicates that the VC industry still has some weakening years ahead. Even though this is not good news for investors, it must not be a problem for the economy as a whole. The peculiarity of the debate is that everyone is still convinced before, early rounds of financing are important for innovative companies.
It’s not about whether venture capitalists to create additional value: History shows that they have driven innovation, even if many entrepreneurs strike up a lament. The scientist Thomas Hellmann and Manju Puri have found in a study by Silicon Valley companies that venture capital -funded companies have brought products to market faster and more of an “Innovator “strategy pursued. In an analysis of patent data could explain Josh Lerner turn, that the VC- dollar ” three or four times “as much effect on the innovation process were as in-house spending on research and development.
Thus, if venture capital is equally necessary and useful, why is it then plays a role of a social standpoint, whether there is too much of it is? Ultimately we are interested not so whether or enter big profits for investors are well paid. The idea is to create new companies and innovations are financed.
One of the basic wisdom in this business is that you do not profitable innovations can detect in advance (which is why it is important that in the VC portfolio a few hits, make up the bad investments).
If the VC industry is shrinking healthy, which has perhaps even more important for them than for us all? For, as says Tim Draper: “There is never enough for investors, entrepreneurs or money for new ideas.”Although some investors put too much money on me-too software companies or failed cleantech companies have, would it have been better they had put it into any debt borrowings from banks, which led to the financial crisis?
However, there are arguments that a too bountiful venture capital industry is not good. First, since investors will receive a certain percentage of the invested money, they can, given the billions that come into play each year, live well even if the investment leads to nowhere. Not a good condition for linear investors.
The ” muscleman “problem is also important: if too much capital leads to one an increase in later financing rounds, decreases the value that can be added by the investment. Equally likely is that broad portfolio, because of the fund size to ensure that the oversight diminishes the performance of each company. This may interfere with entrepreneurs, but the results show by Josh Lerner, that the supervision by venture capitalists has an important role by enabling VC- financed firms are more innovative.
Since there could be no coincidence that the excess supply of venture capital to a period falls, in which only two VC -funded companies have a real difference: Facebook and Twitter. Perhaps it is also the industry as a whole has been a while too well.
This is changing now, and that’s good: the financing with Venture Capital in 2009 fell to 17.7 billion dollars, 40 percent less than last year. Even if it hurts, it is better to get investors; the industry will again find a reasonable size. It is extremely unlikely that the pendulum swings back too far – so that it at once is not enough venture capital. The lure of large profits will remain so. And as before, is more venture capital with successes such as Juniper Networks – and before that associated, for example, Cisco, Apple and DEC – as with failures like Pocket Networks.
Venture capitalists are always very self-confident as well as entrepreneurs: they believe that they can identify potential profits, and realize that others miss. This may for investors and entrepreneurs may not necessarily be good for us all against it already, because is a constant cash flow guarantees in new business. Venture Capital must be a more rational business – but rational may not be the business.
When it comes to getting tanned quickly it seems like everyone is using a tanning accelerator before they go to the tanning beds. Using these products it is fairly easy to get a tan quickly, and get that bronzed look you are after. Within these types of products there are tanning accelerators and tanning lotions, they might seem like similar products but they are actually quite different. Let us take a closer look at them so we can understand the differences.
The first type of product to consider is a tanning accelerator. With these products they are designed to promote and increase the melanin levels in your skin. The pigment that is in your skin that gives it color is actually the melanin the skin cells contain. The more melanin you have in your skin pigment the darker your skin is and the more tanned you will look. A tanning accelerator comes in the form of a lotion that you apply to your skin on a daily basis, and it will boost the melanin production of your body and you don’t even have to be out in the sun.
These tanning accelerators have incredibly powerful enzymes in them called Tyrosin and Psoralen. Each of these enzymes are really amino acids that help the body increase production of melanin proteins. With Psoralen products it will make your skin cells quite sensitive to ultra violet light, jumpstarter hk so you need to be careful to use a sunscreen or blocker with this product so you will not burn. If your natural skin tone if fair or light skinned, you should select a product that is based on Tsyrosine.
Both of these tanning accelerator products are much different than ordinary sun tanning lotion. A tanning lotion is designed to maximize the effects of the rays from the sun, and it will only work when you are in direct contact with sunlight. You really need to be extra careful when using tanning lotions because they greatly increase the affects of sun exposure and it is really easy to get a burn. You should consult a physician on exactly how much time is acceptable in the sun while tanning before you damage your skin.
You need to examine the label carefully for both accelerators and tanning lotions to see what is in them. Some added ingredients are critical for both protecting and moisturizing your skin. Some products have actually color agents in them called bronzers that apply a type of dye to your skin and will give you an immediate tan look. Also, for lighter skinned individuals, you will need a product that offers some skin reconditioning components. You need to be careful when using these products or your skin pores will be clogged. You will have to keep your skin cleansed effectively and make sure you exfoliate regularly or else you will not be able to tan as easily as you want. As you can see there are vast differences between the accelerator products and the sun tanning lotions.
For all of the glamor and allure surrounding the Venture Capital industry, one would expect the investment returns from VC funds to be significantly higher relative to other investment vehicles that are more widely available. However, industry research indicates that over time, venture capital returns have been roughly equal to the stock market in general. Indeed, over half of all venture capital-backed companies fail and roughly the same 50% of all money invested in venture capital funds is lost. This article discusses how a comprehensive IP management strategy could help VC firms lower their risk and increase the return in their respective funds.
According to some conversations I’ve had with people in the VC industry, the statistics above don’t tell the full picture. In addition to half of the venture funded companies that fail, there are those that are described as the “walking dead” – companies that neither go out of business, accelerator nor ever provide the substantial returns needed to satisfy typical VC models. One panelist I saw at a venture conference last year suggested that for their financial model to make sense, they needed at least 1 out of 10 companies to provide a 20x return on their investment. This could be especially troubling for the industry, given the emerging trend towards fewer and lower valued liquidity events.
But what if a venture fund could extract incremental investment returns from their portfolio companies, including the failed companies and from the so-called walking-dead companies? I believe a comprehensive cross-portfolio IP management strategy could provide increased returns to venture investors.
IP Due Diligence to Lower Business Risk
VC’s typically invest in companies at the earliest stages of their respective life cycles. At the point of making the investment decision, the venture capitalist is placing his or her bet on the business idea, the management team; and whether they know it or not, they are also placing a bet on the IP which underpins the business.
It is critical that VC firms perform proper and adequate due diligence in support of their investment decisions. Sorry, but simply having a list of patents and applications is not enough. Investors need to understand whether or not the patents are strong patents, with adequate coverage for the business and the technology in question. The following quote sums it up better than I can:
“In particular, before you invest in a new business idea for a new venture, why wouldn’t you want to know whether you can own the business idea in the long term or whether you have minimal opportunity to innovate freely in relation to that business idea? Or, why wouldn’t you want to know whether another firm has invested $100K or more in patent rights alone in the new business idea that you are investigating?” – from IP Assets Maximizer.
These all-important questions should be answered during the investor’s due diligence. Be warned however, that topographical patent landscape maps or other abstract visualizations do not represent a sufficient level of analysis. They may be an improvement over a simple list (although some might argue that point), but a proper analysis must involve a detailed examination of patent claims in the context of the business and of the technology in question.
IP Portfolio Management to Lower Costs & Increase Margins
Although most of the portfolio companies financed by a given venture fund will be relatively small, and have a relatively small portfolio of patents, it may be worth it for the VC to look across the entire IP portfolio in aggregate.
I did a quick analysis of a couple regional VC firms – with relatively small portfolio’s of companies, these firms had an invested interest in over 300 and 600 patents. By corporate standards, these are sizeable portfolios. I would expect to find even larger portfolios with larger venture firms.
In businesses with portfolios of this magnitude, it is important to understand the portfolio in multiple dimensions. For example, IP professionals, marketers and business leaders want to know what IP assets support which products. Knowledge of these relationships can allow a company to block competitors, lower costs, raise margins and ultimately increase returns to investors. In addition, they will want to categorize their patents by the markets and technology areas they serve, as it helps them understand if their patents align with the business focus.
Bringing this discipline to IP Portfolio management has the added benefit of revealing patents that are not core to the business of the company. With this knowledge in hand, a typical company will seek to lower costs by letting patents expire, or they may seek to sell or out-license their non-core patents, thus creating a new source of revenue.
IP Licensing to Increase Returns
Patents that are not core to the business of the owning company may still be valuable to other companies and other industries. There are some well-known examples of companies who have been able to generate significant revenues from their non-core patents through active licensing programs — Companies like IBM and Qualcomm come to mind. However there are a number of other companies that have generated significant returns by monetizing their non-core IP assets.
In the case of a VC portfolio of companies, each company may only have a small number of non-core patents. But across the portfolio of companies, the venture firm may have rights to a significant number of patents that may be valuable to other companies/industries.
We can extend the concept of monetizing non-core assets of the top companies in the venture portfolio to the “walking-dead” and even the defunct portfolio companies (although with these latter two groups, we may worry less about the distinction between core and non-core patents). In many cases, the business model and the due diligence supporting the original investment in these were probably sound, but the business failed due to execution or market timing issues. In many cases the underlying IP assets may still be fully valid, valuable and available for entry into a focused licensing and monetization program.
If you are looking to private investors for business funding, then you better be ready to answer some serious questions. The following ten questions will always be asked by savvy investors, so make sure you can rattle off these answers on demand.
1. What type of products or services will your company provide? Give them a quick summary of your company and its business model.
2. Why would someone use these products or services? When they ask you this, they are trying to find out if there is an actual need for your services. Is your company providing a solution to a problem? Or alibaba; www.jumpstarter.hk, are you hoping it’s a solution to a problem that doesn’t really exist in the first place?
3. How much capital are you looking to raise? They’re really saying, why do you need this much money? Make sure you can back this up with accurate financial forecasts.
4. What kind of return can I expect and when? This is the one question that you can never answer with any certainty. You need to be honest with them right off the bat. If you give figures that are too high and you don’t reach your goals, you will lose credibility. However, aim too low and you won’t attract many investors. It’s a very thin line to walk. A savvy investor will look way beyond just financial figures anyway. They generally will invest in the better overall package rather than a mediocre operation with only high financial projections.
5. How much profit will your company make? This is a relatively easy question to answer, right. Only if you’re an existing company with a steady customer base. Profit = unit price times quantity sold minus expenses. This is very simple math to calculate. It has no fancy formulas in it and is virtually foolproof. That is, only if the figures injected in the formula are true. Most novice entrepreneurs over estimate the units sold portion of this formula and under estimate expenses. The end result is over inflated profits. When these are not met, someone will have some explaining to do. When preparing financial statements, under estimate sales and over estimate expenses. This will give you more accurate profit numbers. It will lead to a lot less headaches later.
6. How much money do you have invested in your venture? This is a question that can be embarrassing to answer if you don’t have any money invested in your own project. Having money at stake in your venture shows that you truly believe that it will be successful. Even if it is only a small amount, having your own money at stake will definitely be a positive factor.
7. Do you have experience in this field? It’s imperative to show that you have experience in the field of your venture. If you can show that you have experience and prior success in your industry, then you will be ahead of most entrepreneurs. Example: If you’ve owned a landscaping company for 20 years, it would not be easy to raise money to start a tech company.
8. What are the long term goals of the company? You need to have a well thought out plan as to where the company will be in 5, 10 and even 15 years. Investors will be looking for companies that will be able to grow to become large, sometimes even nationally known companies. They will not invest in “mom and pop stores”.
9. Who is your competition? When asked this question, you should be able to recognize your current competitors, as well as any competition your company could encounter as it grows larger.
10. How will you compete in the marketplace? You must devise a way to attract customers. This sounds easy, but it can be a daunting task for a start up company to achieve. Your investors will need to know your plans for achieving this goal. If you’re not a marketing genius, it’s not a bad idea to get a third party to help you with this part of your business.