Thursday, 24 September 2015

Tops and bottoms are fine, but what about the middle?

Attractive, but vulnerable to predators
Unicorns, packed full of investors' cash, occupy the high ground in the ecology of innovative start-ups. There are not very many of them,  As of 25 August 2015 the Fortune Unicorn web page listed just 120 of them worldwide, following the addition of Hootsuite and Illumio.  While the media and some investors are enchanted by them, we actually know less than we like: for example, there is no easy information about launches that were intended to gain Unicorn status but never quite got there, or for that matter start-ups that made a conscious decision to avoid becoming Unicorns, perhaps because of their vulnerability.  Sending out a fabulously rich, commercially inexperienced and possibly IP-light enterprise into the big wide world is a bit like piling Little Red Riding Hood with lavish goodies before pointing her in the direction of the forest in the hope that she will find her grandmother's cottage before the Big Bad Wolf finds her.

Good for Little Red Riding-
Hood? The Ruit backwards
backpack, via Kickstarter
Curiously enough, life at the top of the pile is mirrored by activity at the bottom, where start-ups are small enough to benefit from crowd-sourced finance through mechanisms like Kickstarter and Crowdfunder. In each case the investor feels a large degree of comfort: for Unicorns there is the knowledge that the venture is wealthy enough to tackle serious IP infringement litigation and to buy assets to complement its own launch portfolio, while with crowd funding there's the feeling that the amount ventured -- if not trivially low -- will not hurt if the investor doesn't see it again.  And while big investors take extra comfort from the identity and commitment of other possibly big name or commercially savvy backers, small investors in crowd-funded feel secure in the belief that there is wisdom in crowds and large numbers of sane, rational small investors would not consciously make the same mistake.

Both Unicorns and crowd-funded ventures attract publicity on the traditional and social media to the point at which it can be easy to forget that both phenomena are exceptions: by far the largest proportion of start-ups (there being no such thing as a typical one) have to approach the various suppliers of more typical finance, often repeatedly explaining the same basics to lenders whose assets consist of the money they lend and who are more anxious to see those assets returned with interest than to buy into a borrower's dream. 

Can the path for the vast majority of start-ups be made easier? Business plans are often viewed with suspicion since they are drawn up by those who have an interest in raising capital based on them. Few prospective borrowers have yet turned to IP analytics as a means of bolstering the evidence provided by a business plan, by enabling lenders to comprehend and visualise the position of a new product that may not even be on the market, showing how it might establish a niche from which competitors cannot easily dislodge it. As IP analytics gains ground as a discipline and products such as Cipher and its competitors become more widely used and accepted, things may indeed look up for start-up borrowers of all sizes.

For further reading on Unicorns, see "Unicorns: what they are -- and why we should care", here.

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