– My Note –
Yesterday as I was searching the sites about patent brokers and continuing to work on one of the business plans that came from an idea two years ago, (and after interacting with an Atlanta business incubator program by phone and email – who simply requested that I get the plans made up to let them see what they would be) – I found some ideas about business that were disturbing and added to my experiences with designing new things from the course of my life.
So, this is to explain why I am stumbling about with some of the things I’ve found about business, about brokers, about investors, about angel investors and about starting a business of any kind (and about selling patents or copyrights.)
One thing that I found yesterday was from an answer to a post when I put in the search terms, patent brokers, on a google search. There were three answers to the post about getting a patent broker. I clicked over to each of the links to explore the companies’ websites which I did the same way that I always do when I’m researching something. On the first site I was exploring, there was a link to a library of resources which yielded a three page pdf written by their vice presidents of marketing / brokering patents. It was very interesting and I saved it, then hand-typed everything from it on a document.
It is found here:
It is called:
Understanding the disparity between market potential and buyer value
It is from a company called:
IntellEdge – who are patent brokers
And, I had been reading through the other pages of their site after I found it – because, of course, I read the document having clicked on the link for it first when I first arrived at their website.
Now, to be honest – I wasn’t confused but rather I couldn’t mesh the disparity between the two avenues of thought – one which I’ve learned and followed from books and resources about starting a business and the other avenue which comes from the side of investors, bankers, other active business practices in the real world that I’ve been seeing (which I’ll cover in a minute).
Okay – so just talking and thinking out loud here, (so to speak) –
When a person wants to start a business there is a path of design, invention, innovation and business concept creation which begins with the needs of people, the needs of businesses, the needs of communities and the needs generally found currently that have not been filled otherwise or are being filled in a less than optimum manner.
Then, from that point, the process of creating possible solutions, products, systems, strategies and business concepts unfolds. With every step there is a building, creating and innovating process that is underway which ultimately will yield the new tangible businesses, services, inventions, creative strategies and products that will be in the marketplace to make a better future for everyone.
Okay – I get all that.
Then, whenever I’ve looked in business books about starting your own business, the next part of the process unfolds with its written elements that define the project and the business plan, designs and background research takes shape that backs up the novelty and the invention or innovation, the logos and written marketing materials are made and access to investors or seed funding located. Then – what is disparate about all that?
I will add this too – (which came from an earlier post that I wrote in 2008) –
The eight tenets of trust are:
* Mutual Honor
* Willingness to Temper (or Suspend) Personal Gain for Higher Principles
* Fairness and Decency
* Service / (Citizenship)
* Fair and Reasonable Use of Discretion and (Choice) or Free Will
* Honesty of a Genuine Nature
– written by cricketdiane, 09-27-08
My Note – (continued) –
So, what is the disparity that has me unable to find congruency about business and aspects about business?
It is these facts – (that definitely exist in the business world community of investors, bankers and business strategies.) –
The pdf that I mentioned above about patent brokers describes the reasons that someone interested in buying a patent would have for buying it – these include but are not limited to – (from their list at IntellEdge patent brokers) –
To quote their document –
Define the buyer, define the buyer’s motivations, and you can calculate a value. The tricky part is that patents are complex assets and their uses can vary from one buyer to the next.
Some of the motivations for purchasing or owning a patent include:
General assertion purposes
Keeping the patent out of the hands of NPE’s
Developing a licensing program
Supporting a litigation against another party
To protect a new business venture
And so on . . .
Each of these motivations carries with it a somewhat different idea of the value of the patent. As an example, a patent obtained for portfolio building purposes may only be valued at around the cost of prosecution ($30K – $50K range). However, the same patent obtained to support a litigation against another party could save the buyer hundreds of thousands to millions in damages and attorney fees (and thus it would have a value in that range.)
Understanding the disparity between market potential and buyer value
My Note – (cont.)
And from the things I had researched three days ago concerning angel investors and interacting with them –
Not only do they not sign non-disclosure agreements – and in fact, neither do large companies for almost the same reasons which are that they don’t want to and have no intention of being called into court over possible infringements arising from them, but also this about angel investors and probably venture capital funds as well –
I had actually said it wrong on the earlier post from two days ago and I will correct it here –
Angel investors want a return 3 – 5 times from their investment capital into a business venture within 2 – 3 years. That means, they want to put in a $1 million dollar investment, for instance and then receive a return of 300% – 500% with 2 – 3 years back from the business. (my paraphrasing from information found in the resources about angel investors found online and elsewhere – current information from within the last three years & five years.)
That being the case, I thought about it and I thought about how the information that I’ve studied from the recent and current economic meltdown in the United States shed a light on current business practices and investor communities’ business strategies and put the two together to realize there are probably three ways basically that an investor can be assured to get that kind of return from a small or medium-sized business startup where they are investing funds.
This is my list and it is only an educated guess but it is probably about right –
A.) business is defunct and hedges, credit default swaps / credit derivatives insurance pays out
B.) % shares or investment ownership value of business has increased enough to sell it for 3 – 5 x’s the investment
C.) leveraged uses of the investment are made – using it for leveraged buyouts of something else or as collateral for bonds and loans to support their ongoing business and portfolio assets (some of which could yield business liabilities for the business startup rather than for the investor using their collateral in the business as leverage – as evidence by recent events in the economy and business / financial community)
Okay, I can see that from their point of view. And of course, not to be undersold but two other secondary pathways would obviously be available to them which are – that the business where they’ve invested is wildly successful within a two year window which yields back their investment plus a 500% return to them on top of it (without tearing the business resources to hell).
Or, secondly, that they have managed to invest in a business that has an exit strategy to be sold in the marketplace within a two – three year window for a massively excessive amount of money to some other concern or investors or conglomerate. And, then the till is divided up from the sale – giving the angel investors their desired financial increases in the measures they are demanding, and maybe more than originally anticipated, although within a short window of time that is usually the least likely scenario of all.
Most businesses are not at the break-even point until three – five years from their date of inception as a startup, according to statistics and business journals. And, during this economic downturn in the US economy and throughout many of the world’s economies as well as in the vast number of sectors that have been stressed or growth-inversed by it, the break-even and profitability window for the majority of businesses, especially startups right out of the gate could be even longer than that.
I remember the leveraged buyouts and junk bonds of the 1980’s with their corporate raiders coming into established and partially established businesses to strip all the assets, patents, intellectual property, facilities, copyrights and other trade secrets, business processes, customer databases, supply lines and supplier agreements, market access and market distribution points, technical know-how, capital equipment, pension funds, employee health funds and every other healthy thing from the companies they raided.
And, I remember the dotcom excitement, building, buildup, bubble of startups and seed capital everywhere for the least excuse of an idea with a multitude of very healthy companies becoming quickly undermined and sorted through the bankruptcy courts when the competition for revenues and funding failed before they had a good chance to stabilize and grow. That probably means more about the investors and investment capital pulling out and taking their prize money out of the sector more than anything else. And, they did it almost simultaneously, either because they (investors and investment capital) all started into it at about the same time and the three year window to get their payouts came within a short time of one another or because there was some indication by an analyst or financial ratings group or business / financial industry consulting think tank / analysis bunch that decided it was time to do so and downgraded the potential in that sector for getting out with any money (or something in that neighborhood.)
I also found yesterday (well, actually the night before after writing the initial parts of the business plan for one of my projects), the link to something else I actually did know and had not added into the starting your own business thinking. And it was found here:
KCET’s Day says ACE-Net is working to improve its shortcomings: Because it’s an SBA project, it does have more bureaucracy than if it was done by a private company. But they are doing as much as they can to make it a streamlined process. Still, raising money is almost always a time-consuming, diabolically detailed job. Many entrepreneurs may find ACE-Net’s red tape too nettlesome. But as most soon find out, angels with real money rarely go into a relationship blind.
The danger is that ACE-Net could become a bland bulletin board, full of four-page business plans, none of which are sophisticated enough to catch an investor’s attention. To guard against that, Bibbens encourages any company using the short form to attach a complete business plan to the electronic documents. That’s especially so because entrepreneurs may want other people’s money, but they are extremely wary of revealing too much about their businesses. That’s not misplaced, says Alexander Glass, director of the Bay Area Regional Technology Alliance in Fremont, Calif. There’s an art of disclosure: Assume your principal competitor has signed on to ACE-Net as an investor, and act accordingly.
(excerpt from – )
By Dennis Berman in New York
From Wikipedia, the free encyclopedia
which took my attention halfway down the page to this –
A business entity adopting IFRS must include:
- a Statement of Comprehensive Income or
- two separate statements comprising:
- an Income Statement displaying components of profit or loss and
- a Statement of Comprehensive Income that begins with profit or loss (bottom line of the income statement) and displays the items of other comprehensive income for the reporting period. (IAS1.81)
All non-owner changes in equity (i.e. comprehensive income ) shall be presented in either in the statement of comprehensive income (or in a separate income statement and a statement of comprehensive income). Components of comprehensive income may not be presented in the statement of changes in equity.
Comprehensive income for a period includes profit or loss (net income) for that period and other comprehensive income recognised in that period.
All items of income and expense recognised in a period must be included in profit or loss unless a Standard or an Interpretation requires otherwise. (IAS 1.88) Some IFRSs require or permit that some components to be excluded from profit or loss and instead to be included in other comprehensive income. (IAS 1.89)
Items and disclosures
The statement of comprehensive income should include: (IAS 1.82)
- Finance costs (including interest expenses)
- Share of the profit or loss of associates and joint ventures accounted for using the equity method
- Tax expense
- A single amount comprising the total of (1) the post-tax profit or loss of discontinued operations and (2) the post-tax gain or loss recognised on the disposal of the assets or disposal group(s) constituting the discontinued operation
- Profit or loss
- Each component of other comprehensive income classified by nature
- Share of the other comprehensive income of associates and joint ventures accounted for using the equity method
- Total comprehensive income
The following items must also be disclosed in the statement of comprehensive income as allocations for the period: (IAS 1.83)
- Profit or loss for the period attributable to non-controlling interests and owners of the parent
- Total comprehensive income attributable to non-controlling interests and owners of the parent
No items may be presented in the statement of comprehensive income (or in the income statement, if separately presented) or in the notes as extraordinary items.
(from here – )
(and this – which I had actually looked at first – )
Other comprehensive income is the difference between net income as in the Income Statement (Profit or Loss Account) and comprehensive income, and represents the certain gains and losses of the enterprise not recognized in the P&L Account. It is commonly referred to as “OCI”.
In practice, it comprises the following items:
- Unrealized gains and losses on available for sale securities [IAS 39/ “FAS 115” – “Accounting for Certain Investments in Debt and Equity Securities”]
- Gains and losses on derivatives held as cash flow hedges (only for effective portions) [IAS 39/ “FAS 133” – “Accounting for Derivative Instruments and Hedging Activities”]
- Gains and losses resulting from translating the financial statements of foreign subsidiaries (from foreign currency to the presentation currency) [IAS 21/ “FAS 52” – “Foreign Currency Translation”],
- Actuarial gains and losses on defined benefit plans recognized (Minimum pension liability adjustments) [IAS 19/ “FAS 158” – “Employers’ Accounting For Defined Benefit Pension And Other Postretirement Plans”]
- Chages in the revaluation surplus [IAS 16 and IAS 38].
While the AOCI balance is presented in Equity section of the balance sheet, the annual accounting entries, as flows, are presented sometimes in a Statement of Comprehensive Income. This statement expands the traditional Income Statement beyond Earnings to include OCI in order to present Comprehensive Income.
Under the revised IAS 1, all non-owner changes in equity (comprehensive income) must be presented either in one Statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income).
Reclassification to profit or loss (P&L)
Flows presented initially in OCI sometimes are reclassified into Earnings (Profit or Loss) when certain conditions are met. For the five types of OCI described above, the triggers for reclassification are presented in the accounting standard that gives rise to the OCI flow.
Alterations to definition of OCI
In the United States further alterations to this OCI definition occur when a new standard (including a revision of a previously issued accounting standard) identifies an item that can be measured, should be measured in the financial statements, represents a “flow” variable rather than a stock, or snapshot, variable, and does not represent a flow variable that should be presented in the Income Statement as a component of Earnings. The flow variable that is both measurable and should be recognized is then added to the list above of items that a reporting entity would include in AOCI.
In the third quarter of 2008 the United States Securities and Exchange Commission received several proposals to allow the recognition in AOCI of certain fair value changes on financial instruments. This proposal was initially well received by representatives of the banking community who felt that Earnings recognition of these fair value changes during the concurrent “credit meltdown of 2008” would be inappropriate. The effect of this proposal, on balance, would be to remove sizeable losses from Earnings and thus Retained Earnings of banks, and assist them in preserving their regulatory capital. The regulatory capital of banks in the US and generally worldwide includes contributed equity capital and retained earnings but excludes AOCI, even though it is reported as a component of the Equity section of the Balance Sheet.
My Note – (cont.)
Note that beyond the disparity which says the business startup owner is involved in the passion of building a business and place in the market that essentially is nothing more than a sandcastle for the investment community to tear down in order to take their own profits and returns within a very short window of time (2-3 years), the other part of the disparity was made extremely obvious during the current economic crisis which is that businesses have become hedge funds for themselves and commonly maneuver stocks and investment portfolios to show a profit stream even when there isn’t one in the marketplace for their business products or even for their business model in general. That practice not only has led to extreme maneuvers in business strategies but also the taking of losses for the tax incentives gleaned from them to cover the portfolio losses when they occur and transfer them into the business to cover assets and vice versa.
Very seldom in the history of economies and business has there been a time in which the validity and viability of a business did not rest on the revenues derived from the basic foundation and “business model” or the profits and losses balanced over time to profitability based upon income derived from these activities. That is to say also, when businesses in a competitive market arena do not rely upon the revenues of their primary business activities but rather on the portfolio of non———- stocks, bonds, credit derivatives and other financial “tools” where their activities do not play a part, the primary business model cannot flex to meet the real market environment and the real challenges inherently present at any given time. The loop of feedback and response to the marketplace and to customers and to future revenues and revenue stream potentials from the real business activities is curtailed, circumvented and its immediacy is interrupted.
What these things tell me is that competitive industries in the marketplace would not be playing by the same rules as any startup business would be necessarily required to use – no investment portfolio would exist to hedge against slow sales in a startup business unless it was designed that way from the very outset, but nearly all businesses competing in the marketplace for that same share of the market would have those portfolios and offset strategies for everything from slow sales, to receiving tax breaks from it as a business method, to using it for excess and immediate leverage for expansion and general business loans and access to commercial paper which wouldn’t be available to the startup in any measure.
What is also telling about the disparity between the way that business investors, patent brokers, bankers, and investment resources look at a business, especially a startup in comparison to the person that is inventing that business in the first place, building it and investing personal capital, resources, dreams, sweat equity, creativity and innovation in it – is the idea that comes from the “business world” which devalues concepts, ideas, innovations and market distinction at the same time it is desperately hungry for it (as mentioned in every single published opportunity for discourse by the business. banking and investment communities.)
So, I was making the business plan and accompanying materials to go with it about the time I found the patent brokers pdf that explained why my patents would basically never be worth anything to anybody and I would be lucky to get them sold by a broker who could find someone to buy them just to put them on a shelf and keep them from the competition – or at least that’s about the way I took it at the time point in creating the business plan that I was working to do. And, although I can understand their perspective about it – they are likely operating (and just as other patent brokers as well are operating) more in the interests of the buyers and investors in the business community who want to buy patents for their portfolios or to keep them out of the marketplace than are they operating in the interests of the patent holders, inventors, designers and companies or research organizations holding those patents.
There are probably a lot of good reasons for that – up to and including the fact that patent holders and inventors are tourists that only show up occasionally compared to the everyday bread and butter money that brokers of patents and other financial investment resources get on an ongoing basis from businesses and corporations that raid for patents.
And, then I was trying to resolve the disparity of these business viewpoints and avenues of practical business paradigms – even while creating a business plan and I kept thinking, who would create a patentable thing of any kind just for some business to buy and keep it out of the marketplace?
My Note – (cont.)
Okay, so here is where I am with this now –
I feel completely clueless about how to properly proceed in this environment given these chasms between what I am reading and applying about starting a business compared to the avenues of thought used by investors and other business resources and players already in the marketplace.
And, secondly – having already in my lifetime (across many other years previous to this one) – run around to various business investors, potential business partners and community members looking for investment dollars for previous business plans and revenue generating patentable materials, copyrights and businesses – I am disinclined to do that ever again – ever.
It did not yield any of the results I expected nor those that I wanted from the theft of opportunities away from me to the consummate rejection of me and my businesses, inventions and copyrighted designs – only to find them being used in the marketplace by others at some later time not long after showing them to potential business partners and investors. I don’t want to ever do that again because it is horribly wasteful in time, resources, goodwill, efforts and yields nothing of any good to my life.
And thirdly, recognizing that I am never going to be a good credit risk – a good candidate risk for investors since I have neither fourteen degrees after my name nor a track record for my business abilities nor credible business experience obvious by some fancy resume or work history (among other things) – how to go about this?