BDC’s $160-million fund and IP understanding
BDC launched a $160-million initiative to support Canadian Intellectual Property (IP) development. It is a bold move that attracted considerable attention from the Canadian start-up and funding communities.
Reading both the BDC statement and an article in The Globe & Mail made me think about IP awareness, IP education and how one might make this program work. Don’t get me wrong: I support the effort. However, let’s provide a clear message and attack the issue, not simply use the term IP as much as possible.
The term IP generally covers a variety of intangible assets. Here, I want to consider patents, one of these intangible assets. A patent provides legal protection to an aspect of technology. A patent is derived from, or is a by-product of innovation around or solution to a problem. It “protects” that solution such that, hopefully, others are prevented from using it.
Let’s start by replacing the term IP with “patent” in some of the statements and see how they fare. I should note that some of these statements may work with other IP types, but here I am looking at patents.
“Companies offering intangible assets like patents often struggle to access capital, …” said Jérôme Nycz
This statement does not really make sense. Unless engaged in a patent brokerage deal a company does not offer patents. A company offers a product and patents are obtained to protect technology within the product.
“ … providing the capital patent-rich companies need …”
This statement makes sense as there are “patent-rich” companies out there. An assumption that the patents are valuable is inherent here, and for patents to be valuable they must be associated with technology that works and is important.
“These will be scaling companies in knowledge-based industries with rich patent portfolios …”
This statement does not really make sense. The intersection of “knowledge-based industries” and “rich patent portfolios” is a very limiting subset, so it would represent a small number of scaling companies. Data-related companies might fall in here. That said, rich patent portfolios are relevant to scaling companies in many industries, including those related to physical, tangible products. One might say an intangible asset protects a tangible product.
Globe & Mail article:
“ … will provide debt and equity funding to startups generating revenue from patented inventions they own or license.”
This statement is awkward. One can certainly generate revenue from patents. Revenue targets for licensing activities are quite common amongst large semiconductor companies, with large patent portfolios. However, in most cases revenue is generated by selling a product. One then wants to protect the product’s revenue with patents that protect enabling or differentiating technology within the product.
“ … the fund will target globally minded companies that generate at least $1 million of annual revenue selling patent-based products …”
This statement is also awkward. As above “patent-based product” sounds like a patent portfolio for licensing. It would be clearer to say a patent-protected product, which infers aspects of the product are protected by patents.
“Jérôme Nycz, executive vice-president of BDC Capital, said the fund is just a start as the bank gets accustomed to financing companies based on their patent potential … ”
This statement works and it is worth a few thought cycles. What is patent potential and how do you recognize it? Patent potential suggests the technology and solutions will lead to a large number of patents. In such cases one would likely be working at a fundamental level of a technology, such that many levels of development that build on this initial development are possible. Solving a “small” problem in a peripheral bit of technology does not meet this standard. The story of flaming grapes provides some thoughts on this.
A combination of deep technical knowledge in the company’s field and patent experience is needed to identify such “patent potential”. The technical knowledge is key, as the analyst has to see the field, the particular technology and where the two might go in the future. So, if this BDC program wants to approach their goal they need this skill set on board. Someone without such deep technical experience will not see the potential. It is that simple.
The discussion comes back to education. A high-level person within BDC, one that announced the program, made some, at least, awkward patent statements. This does not instil confidence in the program. This is a large pool of capital and could make a real impact.
We need those in leadership and funding roles to understand patents and IP in general. There is a real chance money will flow to good marketing, a slick GUI and companies that meet current VC parameters of success, as opposed to companies that approach a field of technology with innovative, patentable solutions.
These thoughts also apply to the press. The IP message has to be correct, particularly when writing about a new IP program. As stated in earlier articles (see above link) we need IP education that addresses the fundamental application of patents, the role of technology and the perception of them. Larger societal support for patents and IP is more difficult when awkward or incorrect statements are included in the IP discussion.
BDC’s new $160-million fund could make a difference. To do so “it” needs to understand patents and IP, and it needs to understand technology. If it misses on either of these fronts it will miss the opportunity.