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New Thinking Welcome Here
Date: Pi
Peniel Scalators - is a year-old scaling and licensing advisory and VC firm, that typically works behind the scenes, helping growth as well as expansion stage ventures (g&ev) sell their licensing rights, and also investing in the licensee ventures mainly for scaling purposes. It has a proposal for seed stage as well as startups (s&sp) that are active - it wants them to give equity to identical, (g&ev) in exchange for licensing rights. Put another way, it wants to create a two-sided marketplace that helps (g&ev) find stakes in more identical/ competing (s&sp) that are in other geographies.
This also pushes (s&sp), to think from an early stage about their scaling/ licensing strategy. The initiative makes some degree of sense. As companies mature, they often need to think more about future international markets and local competition in those markets e.g Uber and Didi in China, (If a company sells the licensing rights to a foreign local (s&sp) it scales quicker.)
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Of course, it’s also easy to imagine the many obstacles to it working, from variations in valuations between emerging and advance economies, to IP protection or lack there of in emerging economies. Below we detail some information from our various interviews to motivate more about how the founder Peniel sees this working, and why he thinks Peniel can overcome some of these challenges. This motivation is not exhaustive but summarised.
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New Thinking Welcome Here
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Q: You’re trying to match (s&sp) with licensing opportunities from foreign markets, saying it will help them leapfrog and save them money, as well as help them scale. What was the impetus for the idea?
A: Due to our rich heritage in auditing, internal auditing and business system improvement, we were doing some process audit on the venture capital cycle, and noted some inefficiencies. We also did an observation of the innovation landscape, and there we spotted some duplication and disregard for IP rights.
We then noted that entrepreneurship, and indeed the traditional venture capital process are cumbersome and “ You must be in the state elitist in their nature. Our idea that the process needed of play to create” some innovation, that in some transactions, where the business plans are identical the following stages can be - PAULA SCHER bypassed and cost and time saved; mainly ideation, seed, early stage, growth stages with leapfroging to late growth and expansion stages. The final push, was born out of the knowledge that, 3/4 of product development spend, is on products that never succeed commercially, and we felt obligated to do something to counter that, no matter how small our effort.
Q: So how do you analyse the competition elements in that enviroment?
A: Depending on the technology/ product we license, if you look at say PAYFAZZ and the African context. You can rightly say the competition is retailing, hospitality, infrastructure and extractive industry beneficiation, as these constitute the largest number of entrepreneurs, at an estimated 85% of the continent. And this is because we are targeting non-consumption markets of tech entrepreneurs, through the lowering of the bearers to entry, and also allowing large scale penetration. However we are also disrupting the incumbent tech entrepreneurs and VC’s, by offering a cheaper to assembly product “a plug and play”. Off-course the direct competition, another competitor in this regard is “Zoona”.
Q: How does this process work?
A: Startups will submit their pitch, through various platforms in the eco system. We shall establish relationships with such channels, and present the solution to them, which is a license for the matching business plan from a foreign market.
Q: How do you know if a market is suitable/ ready for the tech solution?
A: We establish whether there is job to be done in the locality by the said technology.
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New Thinking Welcome Here
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Q: What is your take on the fact that VC's, concentrate a significant portion of their time with the medium performance ventures, compared with snails and unicorns.
A: Exactly our point, we then said how can we sweat some of those mid range ventures and scale them, considering that they have a good enough product, and that there is an international market for the product.
Q: Given the contribution to the (S&Sp) through the licensing rights, what contribution does the entrepreneur make, and what are the benefits to the (G&Ev)?
A: A final closing condition, has to be the closure of a qualified venture funding round and (G&Ev) commitment to invest the proceeds of [that IP/ license sale] into that round. It also has to give the (S&Sp) at least 90 days to complete the funding round. After that, the (G&Ev) gets the same terms as the VCs in the round and becomes a minor syndicate player, and the (S&Sp) gets full ownership rights to the licensed assets. The (G&Ev) get IP recognition, IP protection, addition revenue streams, new market data for a new geography, loosely put more upside with capped downside.
Q: Some startups may scoff at the idea of giving an (G&Ev)/ competitor so much information about their business, when they don’t know at the outset that they’ll work together and visa versa.
A: Some have asked for NDAs already. We can tell them who we’ve matched to them, before we even send off their business plan.
Q: And if the startup doesn’t want to do a deal anyway, because maybe the price isn’t right? Do they then need to worry about those licences being used against them in some way?
A: The licenses in the pool are for sale. The companies aren’t looking at entering these geographies themselves. If they don’t accept the offer, nothing happens.
Q: How do the companies establish how much their licenses are worth?
A: There are methodologies for valuation. They also look at what other assets have been [fetching] in the market globally, in order to counter the geographical price differences.
Q: How are you paid?
A: We receive a transaction fee from the (G&Ev) based on the valuation of their venture.
Q: How many licences are you hoping to sell per year?
A: It all depends, we want to start small and test the concept, but we are hoping to do 5 in the next say two years.
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New Thinking Welcome Here
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Q: Other than through press stories like this one, how do you plan to get startups into this marketplace? Who’s going to help you convince them they should do this? A: We definitely have to educate entrepreneurs that this is available to them. We shall also talk to more VCs and CEOs and eco system enhancers and foundations and private equity funds, And from a few we have engaged there’s a general sense that the venture capital process/ cycle is ripe for disruption and that crowdfunding is not getting the right kind of traction quick enough.
Q: How much ownership of the startups are these established ventures expecting to get in exchange for their licence? A: It will be a fairly small level of participation. And also considering that the startup leapfrogs to say C/D rounds equivalence. We anticipate on average (G&Ev) will want to cap their participation at 10 to 15 percent, and it could be less, depending on the asset. Q: I’m guessing this isn’t the first attempt to create this kind of marketplace. A: There are other attempts on patent sales; however they are focused at creating defensive patent pools, and one involves giving up rights to check a book out of a library instead of owning it, while the other one sells patent owned by big tech companies for equity. The franchising of the entire operation and not just old patents is new, this takes scale. We’re going to try to break down barriers to making this ecosystem work, and also see how we integrate the technology into the process to make it even more disruptive. Q: What are your timelines looking like A: We are looking at moving from seed to series A then series B in 20-24 months.
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bk ngejane 2024 TITLE: INTUITION PATHFINDER @ PENIEL GA +2782 998 7879 bngejane@gmail.com Floating Office www.peniel.ga (coming soon)
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