Cyril Kretov (Dr. Kirill Kretov) - Intangible assets (intangible resources)
#EEC12 Startup: A Bold Journey Into An Intangible World
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Transcript of #EEC12 Startup: A Bold Journey Into An Intangible World
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Inmaculada Martínez, Partner, OPUS Corporate Finance LLP, London, U.K.@inma_martinezwww.deviatingfromthenorm.com
Startup: A Bold Journey Into An Intangible WorldAsset Finance for early stage companies: how to identify and finance your intangible assets and prepare for an exit from day one.
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Intangible Assets“Identifiable non-monetary assets that cannot be seen, touched or physically measured. Created through time and effort and classified as a separate asset”
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‘Break it down for me, please’
✤ Legal Intangibles (trade secrets, copyrights, patents, trademarks) Translation: Intellectual Property
✤ Competitive Intangibles (knowledge, collaboration, leverage, structural activities) Translation: All that you are when you are a startup
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‘Even in pre-revenue days’
✤ IP + Intangibles = Competitive Advantage
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Competitive IntangiblesDirectly impact effectiveness, productivity, wastage, and opportunity costs within an organisation. Translation: it affects your costs, revenues, customer service, satisfaction, market value, and share price.
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http://www.gearthblog.com/blog/archives/2007/05/google_acquiring_pan.html
http://en.wikipedia.org/wiki/Human_capital
It’s All About Human Capitalsocial capital, social cohesion, social resilience, celebrity, fame, leadership, legacy
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Social CapitalThe expected collective or economic benefits derived from the treatment, training and cooperation between the employees. It is ‘social’ because it is all about ‘relationships’ and ‘interactions’
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Social CohesionThe bonds that bind people together in a company. The ‘material conditions’ and corporate culture nurture and preserve it.
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LeadershipA process of social influence over employees, clients and industry in which a founder enlists the aid and support of others in the accomplishment of a common task.
Translation: will others join the founding team with the same passion and commitment?
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LegacyHow will the founders be remembered? What corporate culture will they create for future employees?
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Funding Asset no. 1: The Team
✤ Your human capital increases as your competence, intelligence and skills increase. Translation: your thinking ability and sector-specific know-how are your attraction points. ‘Passion’ is your ignition.
✤ Much attention is paid to factors that lead to success vs. failure where human management is concerned. Translation: leadership, talent, and even celebrity creates real pull from investors.
✤ Human capital is the stock of competencies, knowledge, social and personality attributes, including creativity, embodied in the ability to perform labour so as to produce economic value. Translation: you, your skills, your team, your vision and attitude is what ‘gets funded’, above and beyond the product.
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For real: What is Competitive Advantage?
✤ Strategic advantage one business entity has over rival entities within its competitive industry.
✤ It stands on two pillars:
✤ use of know-how to develop the means to remain in the lead.
✤ ability to compete
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Ability to compete
✤ The market place is a petri dish of unfair competition: make this your mantra. Others have either more money than you, more developed markets, or superior intangibles. Fight, fight, fight.
✤ True competitiveness is the ability and performance of a company to supply goods and services in a given market. Sell, sell, sell.
✤ Resources (capital, labour, technology) and talent tend to concentrate geographically. Break this mould:
* Establish networks of suppliers, buyers and even competitors internationally.
* Create “clusters of self-benefits”, “unbreakable value-chains”, “borderless industrial districts”
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Use of know-how
✤ Competitiveness is not about Know-What (facts), Know-Why (science), or Know-Who (networking).
✤ It’s about tacit knowledge: you know more than you can tell.
✤ The key to acquire tacit knowledge is through experience.
✤ Embodied-knowledge is characteristic of experts, who act, make judgments, etc. without explicitly reflecting on rules or deliberation.
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“Investors loved Steve Jobs because he turned Apple’s market capitalisation without Extreme valuations or speculative ways”
Satisfying investors’ exit needsAnd making some cash for yourself along the way
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Angelsmotivated by intangibles
incentivised by the beta product
looking for a personal opportunity to add value
looking for higher return (typically 25% or more) than the money markets
invest <150k or in syndicates;
a clear path to exit for their long-term investment:- sale of their shares to the company’s principals;
- sale/merger of the company
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Early Stage Fundsa solid management team
a solid business plan
a business structured for investment: convincing and complete
potentially considering earlier exits around the $30 million valuation range (USA) or $10m-$18m in Europe;
invest >200k to 1 million;
a clear path to exit even if it’s over a short time span (3 years);
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VCsthey are risk-adverse: look for high return and a 3-7 years exit strategy;
the startup must perform as an investment vehicle, not a ‘lifestyle choice’ for the founders;
the sector competitiveness and worthiness must be crystal clear;
Invest for around 25% of the equity in a series A because they need to keep the founders motivated and the valuation HIGH for further rounds;
Investments range from €2m to €5m for a first round (EU) and should continue for ‘follow-ons’ rounds;
Need to see a clear path to exit from day 1;
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Private EquityThe size of their funds allows them to enter 50 million plus funding round deals
If a VC cannot IPO you, or trade-sale you, they’ll try to sell their shares to a PE fund and exit.
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Funding Requirements
WHAT YOU NEED
WHAT YOU
HAVE
AngelsEarly Stage
VCs
IPOBought by larger corporation
Raising for funds from VCs and PEs
Raising Debt‘Doing an Apple’= selling products like hot cakes
worldwide
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The Exit Roadmap
YOUR BEDROOM PROJECT
YOUR INVESTORS
EXIT
YOUR SHARES SALE
to the institutional investors (IPO)to a company (Acquisition)to individuals or entities (Sale)to join with an existing company (Merger)
to one or more stockholders buying out the company shares (Buy-Out)
to sell the business concept to others to replicate (Franchise)
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Trade-Sale exits
CHALLENGERSExecute well today or may dominate a large segment, but do not demonstrate an understanding of market direction
NICHE PLAYERSFocus successfully on a small segment, or are unfocused and do not out-innovate or outperform others
VISIONARIESUnderstand where the
market is going or have a vision for changing market
rules, but do not execute well yet.
LEADERSExecute well against their
current vision and are well positioned for tomorrow.
COMPLETENESS OF VISION
AB
ILIT
Y T
O E
XE
CU
TEFOCUS ON TOMORROW
FO
CU
S O
N T
OD
AY
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Successful Trade-Sales Are usually executed within the players of a Magic Quadrant
An exit strategy is a value creation planYou company’s competitive advantage is someone else’s differentiation
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Acquisitions are strategic actions✤ Google bought a startup
every two weeks in 2011 (25 companies or 79, if one counts firms acquired for patents and IP)
✤ Facebook has acquired 10 companies post IPO (purchasing Instagram for $1bn or just head-hunting two talented employees “Acrylic Software” 20/07/12)
✤ Microsoft, Apple and Amazon each bought three.
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Ask yourself each day for whom you create strategic valueYour IP are the patents that will make their share value justified;
Your team are the innovators that they cannot recruit;
Your products are the building blocks that will help them remain competitive;
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40 years on, still working hard for my social capital. Life is harder when you no longer sit on the “lap of kings”
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Oh, and “One More Thing...”
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“Big things often have small beginnings”
Prometheus - (2012) Ridley Scott
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Thank you!@inma_martinez www.deviatingfromthenorm.com about.me/inmaculadamartinez
OPUS Corporate Finance LLP | 1 Bell Yard London WC2A 2JR Tel: +44 (0)20 7025 3600 Fax: +44 (0)20 7025 3601 [email protected]
Authorised and regulated by the Financial Services Authority