Seed-funding IP based start-ups - bridging the gap! WIPO – Forum on IP and SMEs

1. Seed-funding IP based start-ups - bridging the gap! WIPO – Forum on IP and SMEs Geneva, September 13-14, 2007 Dr. Thomas Gering Senior Partner Intellectual Asset Management Corp. September 13 - 14, 2007 thomas.gering@iam-corp.net

2. Private Equity-Fundraising in Europe and the USA (billions) – source: German VC Association BVKJahr Europe in € USA in $ 1996 8,0 43,0 1997 20,0 61,1 1998 20,3 93,8 1999 25,4 114,3 2000 48,0 183,2 2001 40,0 84,5 2002 27,5 30,0 2003 27,0 40,7 2004 27,5 68,7 Sep - 71,4

3. Seed and Early Stage in EUInvestment strong but early stage scarce An overwhelming majority of the funds went towards buyouts, expansion and replacement capital. Looking at the very early-stage scene, the picture is dismal: It is fair to say that the equity gap seen across Europe is even more visible in the CEE region, the European Venture Capital Association EVCA notes in their report. Source: Primus Capital Partners, February 2006

4. Governments searching for solutions to the problem Creation of seed funds by governments “After Estonian Niklas Zennstroem sold his company SKYPE for 2.6 billion $, the Estonian government launched a 30 million € seed fund” Source: Primus Capital Partners, 2006

5. Governments searching for solutions to the problem Public Co-Funding of VCs - Germany Investments to date bythepublic ERP/EIF Fund in German VCs • Jahr Venture Capital-Gesellschaft/-Fonds Fondsvolumen in Mio. € • 2004 TVM/TVM Life Science VI 240 • 2004 Wellington Partners/Technology Fund III 150 • 2005 Baytech/BayTech Venture Capital II 86 • 2005 NGN Capital/BioMed I 250 Mio. $ • 2005 Dr. Neuhaus Techno Nord/INCOM III Ziel: 100 (30 Mio. €-Zusage Dachfonds) Total public co-investment: 500 million € Source: BVK

6. Governments searching for solutions to the problem United Kingdom The Rainbow Seed Fund • Established in 2002 with 8.5 million Sterling in public funding • Professional VC management • Now invested in over 30 spin-out companies or pre-spin-out projects

7. Governments searching for solutions to the problem The networking approach: • Creation of Business Angel Networks • Soft networking mechanisms through chambers of commerce, universities, incubators • Examples: • Karolinska • National University of Singapore

8. Karolinska Institutet Science Park AB For a number of years, there has been something here called “Starthus”, an operation in which fledgling business concepts can get help over a six month period to grow into a new company. Starhus offers free advice plus premises plus services. So far, between one and three new companies are formed each year.

9. NUS: National University of Singapore • Venture Creation: NUS Venture Support Fund – up to 300.000 $S seed funding per start-up • NUS Business Incubator: Provides start-ups with physical facilities and infrastructure, access to a wide network of professional resources, service providers, business consultants etc. • Overseas Business Center: OBC established in key markets to provide smooth market entry for NUS start-ups

10. Situation in the US • Government not really in the VC picture • Hands-off policy • As shown earlier – lots of private initiative • One example: Y Combinator • Founded in 2005; specializing in early-stage start-ups; Slogan: we help start-ups through what is for many the hardest step, from idea to company • Many start-ups using government project funding, SBIR grants

11. IP and Start-Ups A venture capitalist highlighted the problems of ‘politics’ in university spin-outs. “Many start-ups are spun-out of universities, but we can’t bear the politics of academia. Too many people are involved in wrangles over ownership of equity and IP. Universities often refuse to assign IP, and are only prepared to licence IP – so they can get it back if the company fails. The university commercialisation officer is often too greedy and VCs don’t have the time to get roped into their machinations.” The venture capitalist emphasised, “The higher cost of capital in the UK (compared to the US), given the pressures on the IPO market, combined with the smaller market size, means retention of IP, and by extension jobs, will continue to be a function of attracting investment around these areas of competence. The challenge will be focusing limited resources around chosen areas of intellectual distinction. This means encouraging the support of Government, multinational corporates, SMEs and universities to work together around selected areas where the UK can demonstrate global leadership.” Source: UK, DTI, EIGT - ELECTRONICS 2015 – Making a Visible Difference

12. How can national Patent Offices contribute? • They are one of the service providers frequently referred to on the web-sites of Angel Networks, Chambers of Commerce etc. • Some national Patent Offices (e.g. the UK Patent Office) engage in patent search services offered to the investment community / government research sponsors, etc. • Is there a national Patent Office actively involved in this sector of innovation support services – at the interface to the VC sector?

13. One potentially interesting example Finnish National Board of Patents and Registration • The Finnish Office maintains – among others - the National Register of so-called business mortgages • “A mortgage may be registered on the movable property belonging to the enterprise recorded in the trade register and the property may be pledged as a security for a debt, without transfer of possession. • Enterprise mortgage applies to fixed, current and liquid assets belonging to the enterprise. Fixed assets comprise e.g. machinery, equipment, intellectual property rights, rights to trade names and other special rights” .

14. Conclusions • Many opportunities for innovation support institutions in the early stage field • Very important sector of innovation support activity given the importance of IP in the knowledge based economy • However, largely neglected presently at the interface between the IP sector and the area of business development / finance

15. What is IAM Corporation • Comprehensive Intellectual Asset Management Consultancy • From invention to protection to commercialization • Including hands on assistance in the business development process, structuring of financing rounds, etc. • Design and coordination of enforcement activities (intellectual property litigation) • Partners have a combined 60 years of experience in this area in both Europe and the United States • IAM Corporation currently working for clients in the US, France, Switzerland and Germany • IAM also manages a small portfolio of shareholdings in start-up companies located in the US and Germany • Contact: thomas.gering@iam-corp.net - +423-663-086-770 INTELLECTUAL ASSET M ANAGEMENT A Florida Corporation