Ip · Valuation

When a part of your technology is not your own IP, how do VCs react?

Richard Pridham Investor, President & CEO at Retina Labs

Last updated on June 13th, 2017

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Martin Omansky Independent Venture Capital & Private Equity Professional

October 20th, 2016

We would prefer that portfolio companies own 100% of all the IP, but we are realistic enough to know that this may not be possible. If we have a choice in the matter, then, we would prefer that the in-licensed technology not be central to the functionality of the product or service. Of course, each situation is unique, and we would have no blanket policy. Sent from my iPhone

Scott Elrod mHealth technologist☁ex-COO/CIO@Cloud 9-tech for behavioral health■ex-CIO@AmeriDoc(now Teladoc) healing 1.5M patients

October 20th, 2016

It is not a valuation linchpin that the VCs choose as right or wrong. It is how your firm adds value to your clients, and whether you can demonstrate planning leadership (to the VC) if that IP is yanked away. Would your customers abandon your product if the algorithm was removed from an otherwise robust telehealth suite? If other universities or firms have similar automated retina analysis, what is to prevent them from licensing it directly a competitor's platform? Unless the retina analysis is nationally recognized via an exclusive patent, then the only price worth paying is for bare IP (troll) protection. Your best path is to do a simple revenue share with the IP owner(s).  VCs will up the valuation if the customers are locked in and you can demonstrate exclusivity, or a tendency for them to continue to desire upsell in the suite (auto-retina analysis in 2016, iPhone camera integration in 2018, etc)  We should talk more.

Anonymous

October 20th, 2016

In my experience. VC's mostly care about pre-sales / product interest. If you walk in with 50+ pending orders, you are a shoeing if your business plan isn't garbage.

If you have some software that is unproven and not widely tested and it is still a "unknown", you'll need to lean very heavily on past expirence and what makes your product something that someone else can't just rip off and run away with.

Martin Omansky Independent Venture Capital & Private Equity Professional

October 20th, 2016

Scott: Did you address me directly or to somebody else? Sent from my iPhone

Richard Pridham Investor, President & CEO at Retina Labs

October 20th, 2016

Thanks Martin, Scott.

The good news is that there are a few players working on this problem in the US and Europe. Some are further ahead in terms of FDA approval. I can get North American exclusivity from at least one of them. A revenue sharing model is what we're looking at.

Automated diagnosis is one component. There are other value drivers that we bring to the table: workflow management, medical records, structured reporting, archiving, viewer, electronic referrals, mobile / tablet application, patient portal... 

Richard Pridham Investor, President & CEO at Retina Labs

October 20th, 2016

Martin, I cannot specify any further details on this here except to say that fundus imaging is increasingly being used for early detection for various disease states and eye maladies. The eyes are the window into your health and can reveal all kinds of things. Different technologies are being applied for different diagnostic purposes. What you've described seems to revolve around diabetes detection and monitoring. That's not what we're doing per se but it's in the same general realm. Perhaps we should discuss over the phone. You can reach out to me on FD or on LinkedIn and we'll take it from there.

Brian Matlock Principal Attorney, Intellectual Property, Licensing, and Technology Transactions

October 20th, 2016

Richard, You indicate that you understand that "most software companies rely on 3rd party components for various aspects of their platform."  That is correct from my experience as an IP practitioner in the software and computer implemented method and system space.  I have dealt with software for medical devices and other industries.  The question with needing to license components of the IP stack is going to come down to this:  How crucial will a particular component be to the entire value proposition?  If automated diagnosis capability is a secret sauce to your total value proposition then these particular IP owners of the crucial component in the IP stack will want a larger slice of the pie.  If you have other IP that you own exclusively then you may be to make a compelling case to investors on your ability to "package" and "integrate" the entire system.  If so, there should presumably be huge value adds for you to pitch to the investors.  For example, in a typical smart phone there as many as 1200 licensee that get a piece of the pie in any particular hardware configuration and sales channel.  You and your investors need to be able to answer the questions about what other barriers to entry you can command.  Do you have a large, global brand presence?  An experienced and highly skilled sales channel?  In other words, the mere presence of needing to in license certain components is not a value buster.  However, the question will become just exactly how proprietary is your particular total solution and how easy will it be for competitors to replicate your solution?  If it is easy, you may have trouble attracting investors.  However, if you specific expertise in the entire software platform that is not easy for competitors to replicate, then you may be able to attract the right investors.  If not, you may need to look at acquiring the exclusive rights to certain IP or even acquiring a crucial supplier as part of your investment package. Lots of moving parts here but not a deal breaker by in licensing some technology, unless it is the secret sauce that drives the entire value stream.  Good luck!

Martin Omansky Independent Venture Capital & Private Equity Professional

October 20th, 2016

Brian: agree completely - although you said it better than I ever could. Sent from my iPhone

Martin Omansky Independent Venture Capital & Private Equity Professional

October 20th, 2016

Richard: since I am old school, please email me at crucibleadvisorsatgmaildotcom. Sent from my iPhone

Richard Pridham Investor, President & CEO at Retina Labs

October 21st, 2016

Thanks Brian, you raise excellent points. We do not yet have a large global brand or sales team...that's all part of the use of proceeds. What we do have is a solid platform for chronic eye disease management which is being used by major eye care hospitals in Canada and soon (knock on wood) in two major provinces as the standardized teleophthalmology solution. So we have both credibility and traction, even without automated diagnosis capabilities.

Automated diagnosis is the "secret sauce" to scale but the other value based components are vital to making it all work seamlessly across the spectrum of  care. That's why I'm asking the question about how a VC might look at this. I want to frame this properly. Something I am thinking about is the possibility of acquiring one of these automated diagnosis companies as part overall investment package. It's a conversaiton we'd need to have with the VC since it would require substantial additional capital to do so.