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Plenty of athletes have raw talent. But the ones who really succeed are those who are also coachable.  Without that quality, even the most gifted potential star may be more trouble than he is worth. That is particularly true when it comes to the startup entrepreneurs you back.

Great things happen when veteran angels pair up with coachable entrepreneurs. Mistakes are minimized, networks are leveraged, and opportunities are created. Experienced angel investors realize that just because an entrepreneur possesses extraordinary technological vision or genius, for example, it doesn’t mean that he’s going to be good at management or marketing. They favor founders who are willing to listen, take advice, and follow guidance.

Don’t become enamored by the entrepreneur’s fancy product. It is always the people behind it who make a business succeed. You want to back smart entrepreneurs who recognize their own limitations and understand the importance of leveraging synergistic relationships to build marketable strength. You want to back entrepreneurs who can humbly accept that they can’t make it by themselves and they’d have a much greater shot at success if they are open to other points of view.

Entrepreneurs who are too stubborn to be coached often wind up sitting on the sidelines, while their more coachable competitors move up to the big leagues as celebrated champs.

* This is an excerpt from an interview with Dr. Basil Peters. Download full report at Basil Peters Debunks Outright Lies About Startup Exits and M&As.

Basil: Yes.

Rich: What are those types of companies? Are they only in technology? Or, are we talking about across several industries?

Basil: This is definitely a broader phenomenon than just in tech, but it’s most familiar to the people in tech. The capital efficiency that’s possible today is really driven by technological innovation, and primarily by the internet.

The internet has probably been the thing that has changed how we work more than any other previous technology. I think more than the printing press, the railroads, air travel, and telephone communication. The internet has really been the biggest change.

Rich: Absolutely.

Basil: One of the things that the internet has enabled every type of company to do, and perhaps technology companies best, is to build companies and scale them up for dramatically less money than was possible when I was a starting entrepreneur.

Photo Credit: deanj

When I was getting out of grad school, it didn’t seem to matter whether you were starting a software company or a hardware company.

If you were going to grow that to a few hundred employees you needed to have tens of millions of dollars of capital. That’s just how it worked. You couldn’t generate enough profits out of operations to grow it fast enough to get to a few hundred people inside of a decade without capital.

And that’s what gave rise to the large traditional venture capital funds that we still have today. The situation has changed dramatically, where now, because you don’t need to buy infrastructure and you don’t need to write codes from scratch, open source, new ways of hiring and even managing people are possible. Lots of companies don’t even have physical facilities anymore.

Technology entrepreneurs are building companies that are worth tens, or in some cases, hundreds of millions of dollars with just tens or hundreds of thousands of dollars of capital. When you look at some of the exits that ended up worth tens of millions, or in some cases, hundreds of millions of dollars today, often the invested capital is less than $1 million.

The capital efficiency is driven by the technology. When you look at it from an investor’s point of view, those capital efficient companies are the ones that are producing phenomenally higher returns on invested capital.

* This is an excerpt from an interview with Dr. Basil Peters. Download full report at Basil Peters Debunks Outright Lies About Startup Exits and M&As.

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This is Part 4 of an 8-part series on royalty or revenue-based investment. Please visit Part 1 for links to the entire series.

“Startup funding is hooked on exits,” says Thomas Thurston, president of Growth Science International.

Thurston is right. Equity investors are “exit junkies.” Exits are how they make money.

But in the aftermath of the financial crisis, some investors are no longer so fond of the exit-dependent investment approaches they’re using.

Shrinking net worth, depressing exit environment, expanding exit timeline – investors got a rude awakening.

A number of them decided not to wait any longer. They’re determined to see some returns on their investment by testing out an investment vehicle that doesn’t depend on exits.

And there comes royalty based investment (or “royalty based financing”).

You’ve seen an example of how royalty based investment works and reviewed the debt and equity components of the vehicle. Here, we’ll take a look at the repayment structures; breeze over some basic investment terms; and talk about the kind of companies that are suitable for royalty based investment.

Royalty Based Investment: Repayment Structures

Like all agreements, everything’s negotiable. According to law firm Foley & Lardner, royalty based deals can be structured in a number of ways to satisfy investor’s return requirements based on the company’s financial realities.

For example, you may receive (a) royalty payments and interest-only payments or (b) royalty payments over a fixed period.

Either case, returns are capped at an agreed-upon multiple (e.g 3x to 5x) of your original investment. That is, the payments will keep rolling in until you’ve received, say, 5 times of your original investment.

With repayment structure (a), you’d receive interest-only payments for, say, a year or two. Upon which, the company starts repaying the principal and interest on the loan based on a set amortization schedule, plus a percentage of the company’s revenue stream, over the same time as the set loan repayment.

Repayment structure (b) excludes the interest component so you’ll have to wait longer to see your full investment returns. Also, the royalties you receive will be more susceptible to revenue fluctuations.

On the other hand, repayment structure (b) would give the company more flexibility because it doesn’t have to adhere to making fixed payments on a strict schedule. The default risk is lower since the size of the payments isn’t fixed; it’s depended on the company’s revenues.

Royalty Based Investment: Terms

Approval Rights. Foley & Lardner suggests that you’d want some approval rights on major actions that could impact the repayment of investment, since you have no control through an equity stake.

Board Seats. “Because of the nature of the investment, board presence is less critical for the investors,” states Gordon Empey of Cooley. Whether to include board seats seems more driven by the companies. Some deals include them, some don’t.

Information Rights. Empey adds that investors most likely want information rights. After all, as an investor, you may want to know how the company’s doing and make sure the royalty payments would keep coming in.

Royalty Based Investment: Target Companies

Given the nature and structure, the royalty-based model works best on companies that have no clear exits and that are relatively established.

John Hamilton, managing director at Vested for Growth, comments (emphasis added):

Earlier this year we completed a $1.6 million investment into an M&A deal with 8 Angel investors who previously turned down the same deal as equity. They were right, it was a bad equity deal because there was no clear exit. But that did not mean that it was a bad deal. Our royalty terms resolved the issues so that the companies successfully merged and the investors are participating…so far the results are exceeding projections.

We have used royalty only for established companies and our due diligence focus is on sales pipeline, management team and cash flow. As such, we would not recommend applying royalty financing to a start up. We see it as an important tool to help get growth capital to established companies.

So, to qualify for royalty-based investment, the company should have

• a solid growth plan;
• an existing product and a proven demand for the product;
• an established revenue stream;
• substantial gross profit margins that are sufficient to pay royalties; and
• a reliable and reasonably predictable revenue stream.

For example, RevenueLoan invests between US$100,000 and US$500,000 in companies with at least 50% gross margins, and between US$1 and US$10 million in annual revenue.

Similarly, Arthur Fox, the god father of royalty based investment and the founder of Royalty Capital Management, invests in “emerging companies that are doing a few million dollars of revenue a year.”

Gregory T. Huang of Xconomy reports:

[Jeff Schrock, a VC at Intel Capital,] thinks the model makes sense for certain software, gaming, and IT companies (hardware, not so much).

Or even as a growth-capital tool for life sciences companies — especially those on the verge of gaining FDA approval of their product.

It also could work for venture-backed companies whose prospects no longer merit further equity investment. There might be hundreds of those companies in a given year, Schrock says.

Note: The royalty based approach appears safer, as the target companies are relatively established. “This does not, of course, eliminate the risk that the investment is simply bad,” states GigaOm columnist Brian McConnell.

Use of Proceeds

“Royalty-based financings can be an effective bridge to profitability for companies that have already brought a high-margin product to market and are seeking to expand their distribution,” comments Jeff Joseph of VenturePopulist.

Likewise, Rockwater Capital suggests that the company should use the funds to

• launch a broader marketing strategy,
• introduce new products to the market, or
• complete commercialization of a newly created product or service.

Coming Up

Next, we’ll discuss the benefits of royalty based investment for investors.

Alliott Cole

It’s no secret that investors fight head over heels for sizzling deals and promising entrepreneurs to increase odds of success and potential returns. But when demand for quality deals exceeds supply, you better come up with exclusive, creative, or effective ways to lure the Steve Jobses of tomorrow.

How to compete for hot deals? Are startup competitions a source of quality deal flow? What are the key terms to negotiate?

From deal sourcing and picking winners to negotiating terms, Alliott Cole of Octopus Ventures shares his perspectives with Venture Hype.

Alliott Cole and Octopus Ventures

Alliott Cole is an associate director at Octopus Ventures (@OctopusVentures) and a director at the British Business Angel Association (BBAA). He’s a broad member of several startups and he devotes his time advising and discovering promising entrepreneurs at the University of Oxford society Oxford Entrepreneurs.

Octopus Ventures is an award-winning early-stage investing firm in the United Kingdom. Its model is unique in that it prefers to back exceptional entrepreneurial teams rather than specific sectors, and co-invests with a private investor group, Octopus Venture Partners, in every investment. The group of private investors is made up of 110 scientists, entrepreneurs, businessmen, and leaders of commerce who can add value to the companies they back.

* Edited interview

Sourcing Deals

VH: How does Octopus Ventures source quality deals?

AC: Most entrepreneurs — around 4,000 companies each year — come to Octopus Ventures directly or are referred to us via the Octopus Venture Partners group. We also receive many introductions via corporate financiers and other venture capital houses.

In addition, I’ve been running monthly “Open Office” sessions in Oxford for undergraduate entrepreneurs and MBA students in the last 2 years. Similar sessions are also held periodically at our London office.

We also actively reach out to entrepreneurs through panels, conferences, and networking events.

VH: Competition is fierce for hot deals. How should investors position themselves as the most suitable/preferred investors for such deals?

AC: Not an easy question to answer!

At Octopus Ventures we look to build enduring relationships with entrepreneurs and to continually help their businesses in as many ways possible.

In competitive situations, we always ask the entrepreneur to do his or her own due diligence on Octopus. We encourage them to speak to the businesses we’ve partnered with in the past. We hope this will give a candid and accurate picture of Octopus and our modus operandi.

As to how should other investors position themselves as the most suitable investor for a deal, I think it comes down to building a strong, equal, and open relationship with the entrepreneur; communicating clearly at every stage of the negotiation; and demonstrating a proven ability to add value to growing businesses.

VH: You also judge startup competitions like the Innovate!100 competition held in March. What do you think of this type of deal flow?

AC: I love meeting entrepreneurs. Their enthusiasm and conviction is inspiring and infectious. If you add in the pressure and expectation of a pitching competition, you often witness something very special.

I’m always impressed by entrepreneurs who can thrive in this environment, articulating their proposition concisely and with force. I think these events provide a great source of deal flow for investors. I try to attend them as often as possible.

Picking Winners

VH: What do you look for in the businesses you invest in?

AC: For the most part, Octopus invests in companies that have revenues but may not be beyond breakeven.

We believe that the team is the single most important factor. We look for effective, inspiring individuals who can infect those around them with excitement and passion of their proposition.

Second to this, we look for companies that can scale quickly into big businesses addressing large markets.

Finally, these companies must resonate with the Octopus Venture Partners group.

To this end, the business must be simple to understand, has a product or service of value, with a clear route to market and a defined customer.

Negotiating Terms

VH: How does the negotiation process work?

AC: Octopus Ventures looks to build strong partnerships with entrepreneurs from the outset and the negotiation process is a critical element of this.

We provide detailed and lengthy heads of terms so that the entrepreneur can negotiate all of the critical terms of an investment at the same time — before committing his or her business.

Someone once described this process as moving in ever decreasing circles until both parties come together at an agreed focal point. We like to do this face to face and in an open and frank manner.

If the process becomes too difficult, we’ll agree to disagree and step away from the negotiation. It’s not in the interest of the entrepreneur or Octopus to force a partnership if either party isn’t directly aligned with the other.

VH: From an investor’s perspective, what are the key terms to negotiate? Why?

AC: The valuation of the business and structure of the investment are key terms.

It’s critical for all stakeholders in a business to negotiate terms that aren’t only fair and workable for the present but also for the future.

Early-stage companies often require several rounds of finance. Entrepreneurs and investors should be careful not to agree to terms that might make the business unattractive for follow-on investment (e.g. unrealistic first round valuations; complex distribution rights; ratchets and/or anti-dilution provisions) or misalign stakeholders when there are key strategic decisions to be agreed (e.g. on an exit).

It’s also important to strike the right balance on governance and ensure that nothing will prohibit efficient decision-making and action.

VH: Entrepreneurs and investors often disagree on valuation. How do you go about negotiating a realistic valuation with these entrepreneurs?

AC: Investment structures like ratchets and distribution preferences can be used to bridge these gaps, but they run the risk of misaligning the stakeholders in the business. And such structures may lead to bigger problems at a later stage.

With this in mind, a frank and fair agreement is always preferable but there’s no quick and easy route to arrive at this outcome.

Image by: futileboy

According to GigaOm’s Om Malik, angel investors are thinking twice about funding pure-play startups – single-platform focused companies whose profits often bypass investors and developers and go home with platform owners.

When hot startups enter the market, entrepreneurs go crazy trying to discover new ways to capitalize on their success.

Think Twitter. Think Facebook.

Malik offers his perspectives on platform owners and pure-play/single-platform companies:

Historically, developers have had much less control over their destiny than platform owners. Take Facebook. It has played the developer community like a fiddle with its recent actions (and ad-hoc changes). And platform owners always play favorites. Intel had Dell, eBay picked PayPal, Facebook chose Zynga.

Similarly, some of Twitter’s recent actions, such as imposing limits on companies building ad-related businesses on Twitter, have thrown developers into a tizzy, Malik writes.

Chris Dixon, founder of VC fund Founder Collective, suggested angel investors and VCs are pulling back on outlays within the Twitter ecosystem.

“Expect investment in ecosystem to drop significantly,” he recently tweeted. Later Dixon added: “A bunch of investors told me recently there is no way they’d invest in Twitter ecosystem now.”

Angel Investors No Longer Playing Ball With Pure-Plays

A raft of other angel investors were willing to anonymously add their opinions to Malik’s draught. They did mention their interest in Twitter-related startups but they also tabled the main reasons why many investors aren’t playing ball with pure-plays right now.

To start with, angel investors have staged their exodus from pure-play Twitter startups due to proof that the micro-blogging company still lacks the business ecosystem to support returns to venture investors.

One investor put it concisely: “Twitter is more of a broad distribution platform for customer acquisition than an investment platform.”

Another believed the economic interests of Twitter and their hard-working, but often forgotten, developers need to be aligned before its ecosystem will pose a good investment option.

To do that, Twitter needs to first become profitable. “One needs to wait until Twitter becomes profitable before investing in its ecosystem, since that’s the point at which the company will likely embrace it,” shared the investor.

All in all, the article serves as a good reminder to investors: Remain vigilant when filtering single-platform companies. Like celebrity VC Fred Wilson said, “You can’t simply develop [or invest in] stop-gap products for the company’s service, because Twitter will end up filling those holes.”

New angels may ask: How does this super angel weed out the roses from the thorns amongst all ‘em seemingly promising web companies?

To Clavier, startup executives who can’t prove their healthy team dynamics probably won’t make the cut.

In a candid interview with VentureBeat at the recent CEO Accelerator Summit, Jeff Clavier shared all about his preference for startups with strong team dynamics.

Like most investors, Clavier said he prefers a team of 2 or 3, and he likes to observe the dynamics of the team, whether the team is a “good mix” and how well team members “gel”.

Click here to view the embedded video.

“Many times, when one digs deep, one sees that the better members of the team often have silenced doubts or reservations about the less/least capable one.”

And in his years of experience, Jeff Clavier has learned not to invest in a team that shows the slightest possibility of a dysfunction or mismatch.

Clavier said, aside from having team members with silenced reservations who put the proverbial spanner in the company works, teams who

• have chosen the wrong cofounder;
• have skimped on legal advice or picked a bad lawyer; and/or
• haven’t sorted out things like equity division or member responsibilities at pitch point

are also to be avoided.

Jeff Clavier Shows the Pink Slip

Clavier has honed his ability to pick out a team that works cooperatively and efficiently so well that he can usually smell a rat before the pitch session is through.

But if by some chance he has already invested in the company before noticing team troubles, he pointed out that it is the role of the investor to do the necessary firing “as humanely as possible”.

“The investor has to effect change somehow,” Clavier said.

“The first step is to have a ‘gentle discussion’ — which is actually a warning.”

Jeff Clavier Sees This as a Sign of Non-Commitment

Clavier also gives founders who demand luxurious startup salaries a wide berth – taking their unrealistic demands as a sign that they’re not committed enough to the startup.

“People always want to make similar sums to what they made at their previous jobs. Founders need to know that you won’t get rich on salary. That’s why they’re in a start up. It’s a choice they made,” he said.

And on the flipside, Clavier said savvy startups will likely research and even make contact with an investor’s past company failures as part of their own due diligence into the best angel choice for their project, telling Marshall, “to do due diligence on a VC or angel, founders should research/call one of its portfolio companies that flopped in the past”.

Something to keep in mind – angels used to doing all of the watching over should always remember that they may also be judged from afar by the next big thing.

Joshua Schachter / Image by Joi

We recently dived into Joshua Schachter’s “Ask Me Anything” at HackerNews to learn more about the founder of Delicious and the way he invests as an angel investor. He calls himself a “junior” angel who’s trying to figure out if he wants to become a professional investor someday, but the way he thinks and vets deals are very similar to those of sophisticated investors. You can too, if you hang out with the right people and educate yourself on angel investing!

Schachter has invested in “34’ish” startups to date, including mouth-watering deals like Foursquare, Square, and Bump Technologies – deals that definitely not your average “junior” angel can get into.

Find out what motivates Schachter to invest, how he got access to proprietary deal flows, and how he “filters the crap” in Del.icio.us Founder Joshua Schachter: Not Your Average “Junior” Angel Investor.

Here, let’s check out the kind of deals he’s into and his opinions on small angel round.

Joshua Schachter Digs These Deals

The team, product, and market are all important to Schachter. Specifically, he’s interested in new things in interesting spaces that have a comfortable competitiveness climate, as well as those that have the potential to exit in 5 to 10 years via acquisition or IPO.

He looks for strong people

• with firm belief, but not inflexibility;
• who have the “ability to roll with the punches”; and
• who’ve succeeded in tough environments.

He adds that the “evidence of having built something is better” than having a fancy business degree.

Joshua Schachter’s Opinions on Small Round

When asked about raising US$200,000 from angels, Schachter notes that pre-revenue companies raising less than US$500,000 “are making a huge mistake.”

“The point of raising funds is to hire people who can accelerate the growth of the business.” He explains that startups “should spend most of it on people and the rest on other constraining resources.” US$200,000 gets the company “a person or two, which doesn’t do very much.”

So the founders find themselves “raising again pretty much immediately.” The fundraising process is a colossal waste of time. Entrepreneurs going this route are “not making good trade-offs.”

“In my experience, most of these companies fail,” shares Schachter.

If a small US$200,000 round is enough, “it smells like a lifestyle business.”

Some may disagree with Schachter but it’s definitely food for thought. One thing is sure – savvy investors don’t invest in lifestyle businesses.

However, companies raising from Y Combinator, which usually invests US$11,000 + US$3,000 per founder, are an exception. Schachter argues:

If YC were just investing the dollars, it’d be a terrible deal. But it’s doing a great deal more.

Joshua Schachter Favors This Capital Structure

Like all seasoned investors, Schachter favors priced rounds over convertible notes: “I’m investing now, let me price it now.”

He then shares his observations on the use of convertible notes (or “convertible debt”):

I’ve noticed that both very hot and very cold deals are debt. Hot because they can demand it, and cold because they can’t scrape a real round together.

Fun Stuff About Joshua Schachter

What are you wearing?

I am wearing a red “foo camp” tee shirt from 2007, jeans possibly from j-crew, and white gym socks I bought at Wal-Mart.

A year or two ago I threw out all my mismatched pairs of socks and bought all identical white socks. Now I do not have to match and fold the socks when washing them. I just pile them into the drawer.

Was the recent stock market plummet your fault? Did you sabotage the investment banking industry on your way out?

You can’t prove anything. I have an alibi.

Do you talk to yourself often?

Yes, I do talk to myself.

What do you do at Google?

Press buttons, mostly.

To date, Schachter has invested in “34’ish” startups. His deal flow includes some of the hottest startups like Foursquare, Square, and Bump Technologies – deals that definitely not your average “junior” angel can get into.

We scoured the forum and found that buried within the Q&As are tips and insights helpful to truly beginning angels. Let’s check out what motivates him to invest, how he got access to such awesome deal flow, and how he “filters the crap.”

Joshua Schachter and Delicious

Schachter says he “never really had the idea of building businesses, just interesting things.” One of the interesting things turned out to be Delicious (former Del.icio.us), a popular social bookmarking service every cool geek and tons of non-geeks are using.

Schachter was an analyst at Morgan Stanley when he started Delicious as a side project in 2003. The social bookmarking site took off quickly and had received acquisition offers in the US$250,000 to US$500,000 range.

Feeling that Delicious would worth more if he’d work on it full-time, Schachter declined all offers, quitted his job at the bank in March 2005, and raised under US$2 million venture capital. The round was led by Union Square Ventures.

In December 2005, Schachter sold Delicious to Yahoo! for a reported US$30 million, according to BusinessWeek.

Joshua Schachter: From Entrepreneur to Angel Investor

Schachter left Yahoo! in 2008 and joined Google in 2009 to take on an engineer role. He says he still enjoys building something interesting every year. More interesting to us, though, is the portfolio he’s been building as a self-proclaimed “junior” angel investor.

The outspoken entrepreneur-turned-angel stresses that he’s a small investor who typically invests between US$10,000 to US$25,000 per company whose valuation is between US$2 million and US$5 million.

He makes it clear that he’s still learning so he doesn’t lead, negotiate terms, syndicate deals nor would he sit on boards. All these are left to the lead investor of each deal. “So that makes me subordinate to people who do these things; they are therefore my senior,” he insists.

What Motivates Joshua Schachter to Angel Invest

Schachter believes that angel investing “pays vast dividends outside of dollars.” He can “get connections, notoriety, experience, exposure, and so on.” He says, “I know about a lot of what’s going on in the Valley right now, for example.”

Other usual suspects are to

• make decent returns;
• avoid getting bored; and
• stay near to interesting projects.

So far, he finds that saying “no” to so many entrepreneurs is the hardest part of being an angel.

Joshua Schachter’s Awesome Deal Flow

A quick research reveals that Schachter has got his hands in deals like Bump Technologies, DailyBooth, Foursquare, Heyzap, SimpleGeo, Square, and Twilio. Mind you, these are high-profile outfits that many “senior” angels would drool after.

How did he get into these deals? Well, the fact that he’s the founder of the widely popular Delicious makes it so much easier to meet other A teams and promising entrepreneurs.

Schachter says:

Foursquare: I knew Dennis from NYC.
Square: I knew Jack from twitter.
StackOverflow: I was on a panel with Joel once.
Canvas: I suggested Moot to TED and introduced myself at the conference.
Dailybooth: Asked for an introduction to me.

Other than that, his deal flow comes from all directions. “One of my best investments came from a chance meeting with the now CEO at a party,” he adds.

But Schachter isn’t fond of email pitches. Unless the entrepreneur in question has done something great (e.g. built a successful company that he’s heard of), like most experienced investors, he prefers to invest in people he knows or has met. “Cold emails rarely turn into anything,” Schachter comments.

Joshua Schachter Believes Proximity Matters

Despite what entrepreneurs want to believe, proximity still matters to experienced investors (except when the investor has a trusted syndication partner across the border). After all, trust and face-to-face contacts are crucial in angel investing.

Schachter doesn’t invest in companies that are out of his networks (Bay Area and New York). “I don’t like doing deals sight unseen,” Schachter avows.

How Joshua Schachter Filters the Crap

And rarely does he invests without seeing a working prototype first — preferably a first version that’s already online and attracting users, rather than a prototype with just a few basic concepts. Schachter says that this “keeps a LOT of crap out of the way.”

He concludes that bad entrepreneurs are those who

• don’t have a prototype;
• will only walk him through the prototype in person;
• won’t even tell him what the product does without a meeting;
• don’t know how to communicate (way too verbose); and/or
• don’t have a clear pitch to deliver.

Coming Up

Next, we’ll look at the kind of deals that get his attention, his observations on round size and deal structure, and some of the fun stuff we picked up along the way.

In Mind to Market: Commercializing University Technologies (Part 1), we learned that technologies and inventions, when successfully translated into marketable products and applications, can have significant impact on the economy and create money-making opportunities.

But with opportunities come risks. It’s a given. Technology transfer is far from easy. Those who are interested in backing or helping to commercialize university inventions should understand the risks involved and ways to manage risks.

Few ideas as discussed in Part 1:

• Collaborate with specialist firms that help commercialize university innovations.
• Recognize the type of companies that’s most effective in transferring university technologies for good and for profits.
• Understand the differing values held by universities and investors/commercialization partners, and ways to protect the intellectual property.

Left: Didier Leconte of MSBiV

Here, Didier Leconte of MSBiV shares his thoughts on accessing university technologies and offer advice to those who want to help commercialize them.

Didier Leconte and MSBi Valorisation

With a total of 19 years of experience in the innovation sector, Didier Leconte has left his footprints in every stage of the innovation pipeline. He began to specialize in university tech transfer in 2004, where he’d managed a portfolio of technologies for 5 years. In 2009, he joined MSBi Valorisation (MSBiV) as president and general manager of the firm.

Based in Québec, Canada, MSBiV is the investment and commercialization partner for McGill University, Université de Sherbrooke, and Bishop’s University, as well as their affiliated hospitals and research institutes. The firm invests in and commercializes inventions and tech advancements in the energy, life sciences, physical sciences, and information technology sectors. Its goal is to turn marketable emerging technologies into successful business ventures.

* Edited interview

Since only a small percentage of inventions will make it to the market, what are your criteria in accessing university technologies?

The must-haves are market size, competitive advantage (killer app), and strong IP (issued in 50+ countries).

Personally, I see 3 important criteria:

• Real customer traction. Are customers willing to pay for it? If the customer traction is real, it may not have to be in tens of billions.
• Play the game. Are the inventors willing to play the game, which is long, difficult and painful? Granting a commercial license on a patent is an interesting milestone, but transferring the know-how and creating the innovation/development spirit that will transform the patent into a product is another story.
• Vision. Is there a vision? This criterion requires the ability to foresee something that no one else does, and the ability to achieve that vision.

What advice would you give to those who want to help commercialize university technologies?

• Partner with inventors. If the inventors are instrumental, make sure to partner with them. Remember that most licensing deals are IP made of patent and source code, but not the know-how.
• Understand the eco-system. Technology transfer organizations aren’t run the same way. Some look for shares, others royalties; some want both! Most of them publicize their processes on their website so you can learn more about how they work before initiating contacts.
• Give feedback. A technology transferred to the market is the results of trial and errors. Feedbacks help improve the technology and help discover new features and applications.
• Share the value. Negotiation isn’t a zero-sum game. It isn’t an “I win – you lose” discussion. The goal is to fairly share the value created by the technology.

Anything else you’d like to add?

Québec offers world-class laboratories, highly-qualified professionals, and a supportive eco-system that helps entrepreneurs and corporations manage the risks of transferring the technology to the market.

I appreciate MSBiV’s model of investing time, capital, and expertise to help fuel opportunities. I’d like to attract more companies, investors, and co-investors into such model.

To enhance the effectiveness in the transfer of technology, one ought to understand that technology transfer goes beyond the licensing aspect. It’s a process of mutual sharing. I feel more knowledgeable today because of all the interactions I’ve had with researchers, inventors, managers, and investors over the last 20 years.

Just for Fun – If you could have any superpower, what’d it be?

I’d read books and learn new things at a subsonic pace like Neo in The Matrix, and then share that vast knowledge of our world with my kids!

Click here to view the embedded video.

Jeff Clavier recently offered his opinion on the latest trends likely to influence enterprise software.

He pinpointed some major drifts he expected to see across the enterprise software landscape, and his opinion carries weight.

Jeff Clavier vetted enterprise solutions for the financial industry from 1988 to 2000. And he’s invested in over 75 startups in the last 6 years, mostly in the consumer space, at the helm of his firm SoftTech VC.

The super angel told NetworkWorld:

Innovation is slower on the enterprise side, beset by security issues. It’s a mature market with only a few acquirers; sales are more difficult and investors have little leverage when there are so few buyers.

Low cost, consumer applications that leverage the Web offer capital efficiencies not matched on the enterprise side – and they are fun to work with.

“The main trend is the consumerization of the enterprise,” Jeff Clavier suggests.

A move that is a direct result of the widespread consumer-style user interfaces in the likes of Flickr and Facebook.

Jeff Clavier believes the gap between the apps we use at home and those we use in the enterprise needs to converge. He sees consumer technologies going to the enterprise, rather than the other way around.

“Simple, easy-to-build, easy-to-learn, easy-to-use consumer-style apps will increasingly be used to power enterprises.”

Jeff Clavier says web-based tools built for individuals as well as large and small businesses will prevail. And they’ll follow the 37signals model — something he labels as the “anti-Swiss Army Knife” approach to building enterprise applications.

“Startups I’ve funded in that space really bring that very narrow focus on doing something really well at a price which is extremely competitive, and basically wins against the traditional incumbents that were built 10 years ago.” He said.

In a sense it’s back-to-basics for the enterprise software market, with buzz words like “user-friendly” and “consumer-style” systems chosen and adapted to power enterprises.

Changes ahead for enterprise architectures will include more private cloud-based computing and the ability for cloud systems to inter-operate, notes Jeff Clavier.

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