VC-TT Model on Valuing VC-TT Model on Valuing IP-based TechnologiesIP-based Technologies

Presented by : Presented by : Alaya BETTAIEBAlaya BETTAIEB Founder & Past Chairman Tunisia’s Venture Capital Ass.Founder & Past Chairman Tunisia’s Venture Capital Ass.

Founder & Member Board Euromed Capital ForumFounder & Member Board Euromed Capital ForumACIPLP by LES-AC & member BOD of LES-AC, ToT by LESACIPLP by LES-AC & member BOD of LES-AC, ToT by LES

Director Arab Academic Technology Transfer Project @ ASTFDirector Arab Academic Technology Transfer Project @ ASTF

During 4th Annual Conference on Technology Commercialization: During 4th Annual Conference on Technology Commercialization:

Amman, 13 November 2008Amman, 13 November 2008

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ContentsContents

1.1. Importance of Seed/VC Funding in Valuing IP Importance of Seed/VC Funding in Valuing IP Assets,Assets,

2.2. The VC-TT model on investing in IP-based The VC-TT model on investing in IP-based technologies,technologies,

3.3. Ingredients for successful TT activity in the Ingredients for successful TT activity in the Arab world,Arab world,

4.4. Role of the elite in fostering the development Role of the elite in fostering the development of IP culture in the region.of IP culture in the region.

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Bank Financing CriteriaBank Financing Criteria

Risk- free projects. Risk- free projects.

Highly reliable entrepreneur rather than Highly reliable entrepreneur rather than

presumably profitable project.presumably profitable project.

Tangible collaterals. Tangible collaterals.

No equity, No equity,

No follow-up/ Hands-off approach No follow-up/ Hands-off approach

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Gap in Financing Technology Gap in Financing Technology ProjectsProjects

Profitability

Risk

Low

Low

Medium

Medium High

High Banks

Venture Capital

No Interest

55

Nature of the Participation Nature of the Participation of Venture Capital Funds of Venture Capital Funds

Equity, Equity,

No Interest rate and no collaterals. No Interest rate and no collaterals.

During a period long enough to recover the During a period long enough to recover the

participation without constraints to the company. participation without constraints to the company.

With a hand-on approach (coaching the entrepreneurs, With a hand-on approach (coaching the entrepreneurs,

22ndnd, 3rd …round) within the limited period of the life of , 3rd …round) within the limited period of the life of

the fund. the fund.

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Venture Capital Values the progressVenture Capital Values the progress

Idea Prototype Start-Up SME Large Company

The value

International Company.

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Financing Scheme from the Stage of the Financing Scheme from the Stage of the Idea to the Stage of MaturityIdea to the Stage of Maturity

Idea R&D Prototype Creation Start-up Growth and

Development Maturity

Grants, personal resources and government subsidies

Development/Expansion Capital

M&A Capital Private Equity Venture Capital

Seed & Spin-Off funds

Bank financing

Stock Market/Exchange

Risk levels Low High

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The Environment of Valuing University The Environment of Valuing University Research Breakthrough (Patents)Research Breakthrough (Patents)

The university :ProfessorsResearchers post-doctorates

Fundamental and Applied research

Technology transfer office between the University and the Industry

InventionsPatents

Licenses

Knowledge: Applications

Research Contracts

Operational Enterprises

Spin-offs Operational Enterprises

Incubator

Researcher, EntrepreneurRental spaceCommon EquipmentVenture CapitalCoaching/technical assistance

Research Development Institutions

Technology Park

Leasing or selling landbasic infrastructure/utilities (electricity, water, communications)space for rent and space for sale

Production sites & Facilities

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Sample of US Companies Sample of US Companies Backed by Venture CapitalBacked by Venture Capital

MICROSOFTMICROSOFT

COMPAQCOMPAQ

MACINTOSH MACINTOSH

INTEL INTEL

SUN MICROSYSTEMSSUN MICROSYSTEMS

YAHOOYAHOO

AMAZONAMAZON

E-BAYE-BAY

CISCO SYSTEMSCISCO SYSTEMS

1010

Sample of ROI of Technological FundsSample of ROI of Technological Funds

FundFund PartnerPartner Original sizeOriginal size (1993) (1993) Size at exitSize at exit (2003) (2003)

F1F1 Daimler-Benz Daimler-Benz (Ger) (Ger)

2020 9090

F2F2 Advent (USA) Advent (USA) 2525 350350

F3F3 Van Leer Group Van Leer Group (NL)(NL)

2020 4040

F4F4 Oxton (USA, Oxton (USA, EAsia)EAsia)

2020 580580

F5F5 MPV (USA)MPV (USA) 2020 7070

F6F6 AVX Kyocera AVX Kyocera JapanJapan

2020 280280

F7F7 CMS (USA)CMS (USA) 2020 645645

F8F8 TVM & Sing TechTVM & Sing Tech 2020 400400

F9F9 Vertex Int’l Vertex Int’l (Singp)(Singp)

2020 250250

F10F10 Walden (USA)Walden (USA) 2525 175175

210210 28802880

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What makes LPs still hesitating What makes LPs still hesitating Investing in Technology in MENAInvesting in Technology in MENA

Existing opportunities in later stage, riskless huge PE deals, Existing opportunities in later stage, riskless huge PE deals,

Smaller & riskier, longer investment wont justify involvement for some LPs, Smaller & riskier, longer investment wont justify involvement for some LPs,

Difficulties securing intial funding ( Grants, Business Angel, Seed…) Difficulties securing intial funding ( Grants, Business Angel, Seed…)

Lack of qualified entrepreneurs for Techno start-ups (Mngmt),Lack of qualified entrepreneurs for Techno start-ups (Mngmt),

Lack of supporting infrastructure (industries) for techno projects,Lack of supporting infrastructure (industries) for techno projects,

Shortage in appropriate local expertise in dealing with technology Shortage in appropriate local expertise in dealing with technology

investment, investment, Lack of experience in managing the innovative projectsLack of experience in managing the innovative projects

Missing legal framework for IP protection in most MENA countriesMissing legal framework for IP protection in most MENA countries

Difficulties marketing from MENA, StrategicDifficulties marketing from MENA, Strategic alliances with MENAalliances with MENA……..

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Why should LPs be interested in Why should LPs be interested in Investing in Technology in MENAInvesting in Technology in MENA

Seeding for future PE deals, Seeding for future PE deals,

Growing MENA as a technology market ( ex : East Asia, ASEAN, East Growing MENA as a technology market ( ex : East Asia, ASEAN, East

Europe, Latin America, …) for developed economiesEurope, Latin America, …) for developed economies

Techno start-ups could play crucial role in such a target,Techno start-ups could play crucial role in such a target,

Techno start-ups contribute to the burning need for Building a SME fabric Techno start-ups contribute to the burning need for Building a SME fabric

in emerging MENA, in emerging MENA,

Environment is incitative + potential for research breakthrought is high + Environment is incitative + potential for research breakthrought is high +

young graduates available…young graduates available…

Opportunities for strategic alliances in different fields with developed Opportunities for strategic alliances in different fields with developed

countries. countries.

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Missing ingredients in Investing InMissing ingredients in Investing In Technology in MENA Technology in MENA

Innovation

Techno Transfer

Business EnvirtFor creating SMEs

Venture Capital

Accessto soft loans

Technology Index

Creation Index

Economic CreativtyIndex

Source : World Competitiveness Report, Davos 2000.

Technology Fund

Int’l Life ScienceConsulting FirmTech Transfert Co.

-Techno Search-IP Diligences-IP Drafting/Listing-Techno Auditing-Techno Licensing-Techno Valuation-Techno contracts-Techno Assistance

-Market Diligence-Techno Diligence -Techno Auditing-Techno Coaching-Techno formation

- Licensing-driven Fund- VC & PE in MENA- Life Science specific- High Value target

Fund Management Co.

- Deal sourcing- Investment Due Dilig.- Validation of DD with Consulting firm,- Following-up investees- Exit coordination with Tech Transfert Co.

The VC-TT Investment ModelThe VC-TT Investment Model

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Why Technology Why Technology Licensing OUTLicensing OUT Could lead to Could lead to Successful Early Stage Technology InvestmentSuccessful Early Stage Technology Investment

Because It guides potential entrepreneurs/researchers towards Because It guides potential entrepreneurs/researchers towards market demand, and BAs/VCs towards a start-up which products or market demand, and BAs/VCs towards a start-up which products or services are promissing,services are promissing,

Because it secures VCs for better protection of IP rights, Because it secures VCs for better protection of IP rights,

Because it helps assess value of technology at exit stage Because it helps assess value of technology at exit stage essentially essentially

Most importantly it helps VCs exiting, by commercilizing the Most importantly it helps VCs exiting, by commercilizing the technology through trade sales transaction. technology through trade sales transaction.

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Why Technology Why Technology Licensing INLicensing IN could lead to could lead to Successful Later Stage Investment in MENA.Successful Later Stage Investment in MENA.

Because Technology « if well managed » rather than financial restructuring is Because Technology « if well managed » rather than financial restructuring is behind strengthening the competitive advantage of a company and lastening its behind strengthening the competitive advantage of a company and lastening its activity, activity,

By injecting proven new technology through a LIcensing contract we give By injecting proven new technology through a LIcensing contract we give chance to a company to remain competitive for a while, chance to a company to remain competitive for a while,

A licensing contract will secure access to new technology in a very short time, A licensing contract will secure access to new technology in a very short time, better transfer through continuous technical assistance, access to all better transfer through continuous technical assistance, access to all improvements in technology and its impact on lasting the competitiveness…., improvements in technology and its impact on lasting the competitiveness….,

Most importantly it increases the value of the project at the entry which could Most importantly it increases the value of the project at the entry which could be recovered at the time of exit, with significant additional capital gain, be recovered at the time of exit, with significant additional capital gain,

Finally it helps VCs exiting hopefully with multiples, by commercilizing the Finally it helps VCs exiting hopefully with multiples, by commercilizing the

technology through trade sales transaction.technology through trade sales transaction.

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How could Investment in Technology How could Investment in Technology Contribute to Sustainable Growth in MENA.Contribute to Sustainable Growth in MENA.

By positioning the labs on By positioning the labs on niche sectorsniche sectors of vital interest to the of vital interest to the

region and to the world ( renewable energy, water, health care, ICT…) region and to the world ( renewable energy, water, health care, ICT…)

By Valuing By Valuing moremore Research Results in University labs Research Results in University labs

By creating By creating betterbetter framework for IP protection and enforcement, framework for IP protection and enforcement,

Good IP protection raise LP/VC interest and give confidence & Good IP protection raise LP/VC interest and give confidence &

reputation…reputation…

By selecting By selecting teamteam of entrepreneurs with complementary of entrepreneurs with complementary

background ( technology + Management)background ( technology + Management)

By securing By securing appropriateappropriate funding at early stages, BA particularly funding at early stages, BA particularly

By securing commercialization or acquisition of technology By securing commercialization or acquisition of technology

through through Technology Transfer/Licensing agreementsTechnology Transfer/Licensing agreements,,

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The Role of the EliteThe Role of the Elite To raise the awareness on the vitality of mastering necessary technologies and To raise the awareness on the vitality of mastering necessary technologies and on the risk brought to next generations if the issue is not regarded seriously.on the risk brought to next generations if the issue is not regarded seriously.To upgrade, the professional and educational levels of the students, without To upgrade, the professional and educational levels of the students, without scarifying the quality,scarifying the quality,To inculcate the culture of IP within the Universities and Innovative companies, To inculcate the culture of IP within the Universities and Innovative companies, and to build appropriate expertise and to build appropriate expertise To exploit patents from inside and outside the university in technology project,To exploit patents from inside and outside the university in technology project,To convince officials, to prepare the legal framework for IP, to bridge university To convince officials, to prepare the legal framework for IP, to bridge university to industry and to provide supporting network for transfer of technology to industry and to provide supporting network for transfer of technology activityactivityTo ease the creation of a new generation of fund managers,To ease the creation of a new generation of fund managers,To foster the creation of business angels network that adopt projects in their To foster the creation of business angels network that adopt projects in their early stages.early stages.To establish a national business competition for best start-ups, and innovative To establish a national business competition for best start-ups, and innovative projectsprojects

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In ConclusionIn Conclusion Investing in Technology is not a matter of choice any more for MENA, Investing in Technology is not a matter of choice any more for MENA,

it is crucial for survival, it is crucial for survival,

Success is more visible in Technology companies, because of higherSuccess is more visible in Technology companies, because of higher

value of intangible assets, fruit of lnnovation value of intangible assets, fruit of lnnovation

Investing in technology is risky, but higly rewarding once we gatherInvesting in technology is risky, but higly rewarding once we gather

the right ingredients, the right ingredients,

Technology Licensing is considered a good leverage fostering the Technology Licensing is considered a good leverage fostering the

investment in both Early stages and Later stages, through theinvestment in both Early stages and Later stages, through the

licensors additional diligences and technological expertiselicensors additional diligences and technological expertise

By doing so VC and PE alike could support innovative entrepreneurs, By doing so VC and PE alike could support innovative entrepreneurs,

achieve significant capital gain, and contibute to upgrading MENA achieve significant capital gain, and contibute to upgrading MENA

indutrial fabric. indutrial fabric.

2020

Thank you for your attentionThank you for your attention

ContactsContacts : :

Alaya BETTAIEB, Alaya BETTAIEB, Director AATT project @ ASTFDirector AATT project @ ASTFDirector ASTF-Tunis OfficeDirector ASTF-Tunis OfficeMob: Mob: + + 216-98-263-800216-98-263-800E-mail: bettaieb@astf.netE-mail: bettaieb@astf.net