InventionShare provides some unique opportunities for investors, especially when you compare investing in real estate and investing in inventions. Greg Waite, the CEO of InventionShare, discusses this opportunity in a blog he wrote earlier this year. He compares the advantages of investing in inventions and real estate and, in some cases, the comparisons have not been considered before. Regardless of your level of investment knowledge, I think you'll agree that after you read this article, invention investments and investing in InventionShare and our inventions portfolio makes considerable sense.
Kensel Tracy Vice – President Invention Catalyst
Why Investing in InventionShare is Like Owning a Real Estate Investment Trust (REIT) - A Blog Post By Greg Waite, CEO of InventionShare
InventionShare™ is a business based completely on market conditions and huge undercurrents of change. At the core of the business is the focus on very important, disruptive and socially responsible game- changing inventions that are very attractive to the world’s largest or high growth emerging companies. If you lack the appetite to read on, the quick pitch would be that we are somewhat akin to pro sport agents AKA the “Jerry Macguire” for inventors.
We save inventors from themselves, convert techno speak into business brands and language, protect their inventions and take them to the big leagues where large corporate franchises can get their inventions in front of the world market for the benefit of all. Although the sports analogy has value, we are also very much like a real estate company - which we will get to shortly.
We appear different and contrarian only because the market has defined the opportunity and we are 100% shaped by that market opportunity and the unique conditions that exist, conditions that we don’t see changing for a very long time. We would encourage you to read on.
Current Global Conditions are Right for Inventions
In case you haven’t noticed, the world is in trouble and panic is starting to set in – as demonstrated by an accelerated global agreement being reached between 187 countries around transitioning from fossil fuels to a clean energy economy. The value of social responsibility based inventions is at an all-time high because they impact people and planet in a positive and timely way. The environment, energy, food safety and supply, public health and social inequality are some of the world’s biggest problems. To be important and disruptive, an invention family has to provide more value at declining cost and have a positive impact on the problems the world faces. Social impact investing is a most important trend because the returns are staggering and fully supported, given that the public’s choice between a pathway and a steep cliff is intuitive.
Innovation is changing the World at an Alarming Rate
Concurrent with that is the fact that innovation is now running at such speed that large companies are constantly being challenged with relevancy. The standard long R&D cycles for large corporations and incremental invention still works, but there is constant anxiety over relevance. The competitive landscape is ugly because you can fall victim to a market shift from a competitor that you never even knew about. That is because there are just as many unusual suspects as there are usual. Who knew that Tesla would become the most important competitor to automotive companies, not just for their technology but for their disruption of the traditional dealer distribution model? Who knew that Google has and will continue to shake the telecom, cable and ISP markets by getting into infrastructure with wireless mesh cities and hundreds and thousands of satellites? Who knew that the efficient allocation of autonomous vehicles through services like Uber could spell death to at least one major traditional auto manufacturer within the next five years? And who knew that smart phones, and wearables with diagnostics and sensors would compete with and will ultimately replace inefficient lab services and high end medical diagnostic and therapy equipment?
Consolidation, Mergers and Innovation
To counter many of the risks associated with competition, large companies are refueling their innovation tanks with mergers and acquisitions. Given the fear of not being relevant there is little choice. Add to that low global interest rates and a generally low cost of capital and you have conditions for the rapid licensing or sale of important invention families to large or up and coming companies. Survival and greed are two powerful motivators. Remember that the largest influencer on stock price is growth coupled with sustainable competitive advantage. If you can’t grow profitably while keeping the competition years behind you, your stock is going to tank, putting enormous pressure on your ability to raise debt or equity at a reasonable cost. Simply put, you fall out of favour quickly with investors if you don’t have sustainable competitive advantage. The only true way to do that is to have the invention edge.
Investing in InventionShare is Like Owning a Real Estate Investment Trust (REIT)
InventionShare is really modelled closely after a Real Estate Investment Trust (REIT) and has a number of real estate type attributes. The key to real estate has always been location, location and location. In that context, InventionShare focuses on “New York City” like inventions where, given the scarcity, they are biased heavily towards going up. We license (lease) the invention family or we sell, outright, the inventions (buildings). In many cases, we can combine properties so that we own control of a block or an entire street. To really leverage a property or group of properties you need to establish a brand and build a reputation. You need key anchor tenants (licensees or partners) and you need longer term deals (5, 10 and 20 year terms). You also need to reward shareholders with continuous cash distributions and be willing to sell the property for a discount to future cash flows and move into more opportunistic properties.
You can also segment invention properties into many vertical and horizontal purposes so that you are not crippled by a specific tenant use such as commercial, residential or industrial. As an example, an important invention family such as Circuit Seed™ will impact almost every electronic device you have or will have in the future as a consumer or an employee, and every part of your everyday world from your automobile to your doctor, hospital and related medical devices and to the internet of things and every communication you undertake.
It is certain that the life of a building or a block is longer than that for patents, but in the right hands an invention portfolio can be constantly improved, refreshed, paired with new inventions and brands, and can last a lot longer than bricks and mortar. The other enormous advantage of inventions over buildings is that there is no physical limit to the number of tenants (licensees and partners) and you have an unlimited area of coverage. You are not limited to New York City; you have virtually picked up a position in ALL of the financial and business centers of the world.
Patents are Like Buying into Speculative Real Estate in a Flood Plain
While we are speaking to the issue of property, we should stress that there are fewer traditional patent property opportunities out there. Our view is that the patent aggregation and litigation business is like buying a high risk real estate property located below sea level. The best days for patent trolls and NPEs (non performing entities) are behind them. A single, significant litigation can wipe them out - and supporting litigation financing and insurance is harder to get and harder to afford. Patent broker and licensing models for new inventions is also super-saturated. There are just too many patents, and such a large proportion of them are of low quality with a high probability of being invalidated – usually because of prior art (i.e. the invention already existed before the patent was filed).
Creating Value with Our Equity Invention Portfolio
So let’s talk about our invention portfolio and why it’s so much more valuable than a bunch of patent numbers and titles. To do that, we really need to consider inventors and their characteristics in tandem. Important inventions can only come from remarkable inventors. The characteristics that we have seen over the decades and in our portfolio confirm that these inventors are savants, usually very mature or senior with diverse education and career experience. They have had many “aha” moments in the past, and through their unique fingerprint and lens on the world they have been able to create new inventions by solving problems in very unconventional ways.
Corporate innovation is largely incremental, and those inventions have less value and are made within a box defined by R&D budgets and plans. Out-of-the-box thinking is critical to game changing inventions that can lead to disruption. Many in the industry will attest to the fact that invention is random and accidental. Our inventors have been there and done that, and have had the freedom to spend years and even decades on their own thinking about and discovering completely new ways to solve problems. Corporations generally don’t have the cycles to pursue visions over long periods of time because they run on financial reporting cycles and short term objectives.
Unique inventors create unique inventions - inventions that are unconventional and often seen as simple or elegant but which are generally regarded as too good to be true and unbelievable. Part of the problem is that inventors do not usually have a business language. And their claims seem so out there that they lack credibility. Because they have been self-financing their journey, they are usually remiss at filing high quality patents to protect their inventions and often fall prey to opportunistic capital and advice by some of the angels and VCs who only know how to create operating companies – which, in turn, have a statistically low probability of success. When they do succeed, the inventor(s) rarely participate in any meaningful way.
That’s because the major risks to an operating company becoming successful are capital, business execution and obsolescence. All of those risks are easily offset if you just put the invention family in the hands of a large business. They have financial and human capital, they are business execution engines, and they have fast and sophisticated processes for integrating new technologies and bringing new or improved products to market. It is a completely symbiotic relationship. The companies need and want what the inventor(s) have, and the inventor(s) need and want what the companies have. There is absolutely no need for a traditional operating company approach. It’s important to note that angel and VC success rates are low, and a very small percentage of each make up the majority of returns. Studies show that these investment groups yield lower returns than a stock market average index. Having said that, there are exceptions and a minority have continuously outperformed the market. We feel we are exceptional as well.
It’s important to note that inventors are dramatically under-represented, under-rewarded and very much under-appreciated by society. We address all of those wrongs and do so with a coordinated plan since we are story tellers and stories need to be told logically with specific outcomes as goals. Our contrarian model of supporting inventors by funding protection and marketing costs and deferring payment until there is a meaningful liquidity event disarms them immediately. Then, when we share with them that we are a success based partner getting an increasing participation on licensing or acquisition only on the value we create, they are completely onside. The facts are simple. We never exceed 50% participation and that is on amounts that inventors readily confess they would never hit on their own. The single biggest impact we see is that they become fervent and focused inventors. We have taken such a load off their shoulders that they can now focus on what they do best. This change is dramatic and has a profound impact on invention family value, invent around risk reduction and corporate perception of value.
Part of how we are addressing inventor perception is by inviting acknowledged awarded inventors from the past who have been recognized by one or more reputable organizations as being important inventors. Another approach we are taking is to capture inventor stories and share them with media (albeit at the right time and under the right conditions). Inventors need to be defined with celebrity status and should be recognized as intellectual athletes and paid appropriately. The reality is that most of us are alive today because of important inventions from the past and yet very few people have any idea of what those important inventions are or who invented them.
The InventionShare Optimum Invention Portfolio
Having filtered through thousands and thousands of inventions, the InventionShare founders have been able to come up with what is now a highly focused portfolio of three high technology and social impact invention families, with several potential ones signed or under review. These invention families, representing over 20 discrete inventions, have been gleaned from our deep personal relationships and none of them have come from our continuous mining from crowdfunding and crowdsourcing sites. To date, we have found only one game changing invention on those sites and that was a golf ball that would go straight no matter how you hit it. Game changing for weekend warriors, and one that several of us at InventionShare could use, but not even close to the exclusive realm that we are in!
Circuit Seed – Will Change the World with Breakthrough Speed
What’s incredible is that the top three of our invention families can come together for a specific market - such as health care, for example. Circuit Seed will advance all analog technologies and will enable smart phones to be used as advanced diagnostic devices well beyond the leading advances today. In fact, Circuit Seed is likely to affect the size, cost, power, accuracy and advancement of almost all new analog medical technologies over the course of the next three to five decades, making obsolete the current state of the art within a decade years.
PowerWindings™ Changes the Landscape for Transformers While 5by5 Wireless™ Will Provide Better Communications Everywhere
PowerWindings will reduce power losses from larger devices such as those used for MRI and CT, and 5by5 Wireless will provide more efficient full duplex communications between devices and bring Telehealth to rural and remote markets. The combination of inventors and inventions stories coming together to address large sectors or markets is not serendipity - it is part of our portfolio and communications strategy, and connecting dots. It’s how we get to talk to industry giants in medical, energy, communications and automotive sectors. We provide industry impact stories that can’t be ignored even by some of the most bureaucratic and arrogant global companies.
The Value Proposition for the Investor with Our Current Portfolio
A legitimate investor concern might be what happens if we don’t find any more really important and valuable inventions? The answer is that what we have today is a group of assets that will provide 5X to 10X on pre-tax returns over four to five years as cash payouts. The licensing annuities will continue for the life of the intellectual property, which includes the brands. The inventors will continue to invent on adjacent invention opportunities and some of those will get sold or licensed. The reality is we don’t need to find other inventions that meet our criteria but, of course, we will. The evidence to date is that we are attracting high quality inventions, again through our network, and we have tuned up our model to only look hard at those inventions which are, in turn, leveraging or are leveraged by our existing big three. This allows us to target and produce market sector and product category stories through PR and media and present multiple invention families to companies. Basically, we open and/or revisit company doors and they open faster and wider when we have clustered inventions with synergistic value propositions.
The InventionShare Model Limits the Risks for Investors
Several other important risk mitigation techniques are employed by InventionShare or are inherent in its approach. When your objective is to pre-qualify a game changing invention that is solving a big problem in a unique way, you need to review prior art and both patent and non-patent literature. By definition, if the tens of thousands of scientists and engineers in the industry are focusing around the same kind of solution set and you have an inventor team that is looking at the problem from a completely different view point, you are far less likely to have prior art. The other key factor is that really important foundation inventions have so much impact on so many products and services or, as we call it, horizontal and vertical applications. This segmentation offers important diversification benefits and leads to large monetization opportunities.
Another important aspect of de-risking inventions that are “too good to be true” is to make sure you are timed at that invention maturity inflection point. When an invention family has achieved this level of maturity you can have a third party validate, verify or certify that the benefits of the invention family are real. We call it borrowing a brand. We used this very technique for PowerWindings our transformer and AC motor technology. In this case we engaged UCLA to provide an independent assessment on our material cost and efficiency gains and we came out with flying colours. Their brand is global and that scientific affirmation opened discussions with many of the world’s largest energy companies.
Borrowing a brand is an important strategy. Though not typical of our approach, in some instances a small operating company may already exist because the inventor(s) needed to validate their seemingly outrageous claims by providing commercial implementations. Such is the case with our 5by5 Wireless invention family that provides full duplex wireless internet over huge areas with a single tower installation. To refine this technology, commercial implementations were done in western Canada but the key here is to get implementations in key geographies with a reputation for being challenging and accentuate the key value proposition of the underlying invention family: huge area coverage from one tower; low cost, high speed internet; VOIP; multicast entertainment; imbedded software solutions such as education and security. In this case we are borrowing country brands with over 12 targeted country implementations in the next three to nine months in under-served nations, islands and vast geographies with difficult landscapes such as Mexico, South America, Africa, Pacific Rim and the Middle East.
Essentially, we are highlighting the benefit of providing economically viable low density populations in rural, remote and island nations with metro equivalent internet, VOIP and multicast entertainment. Just a half dozen notable global implementations will lead to a dramatic rise in the value of the invention family, and lead to the conditions for licensing or acquisition.
Importantly, InventionShare provides the necessary capital to protect the inventions and create brand and visibility. Through our established networks, our highly connected associates, media and press we make companies aware of their opportunity to partner, license or acquire the inventions. Visibility is the single largest risk and opportunity for important inventions. This technique is proving to be very valuable. In the last two months alone we have attracted large companies who found themselves in the stories that we carefully craft to be audience specific. Using sophisticated internet services, we have been able to provide our invention families with global visibility. The impact has been dramatic and we have a large following of relevant journalists, media outlets, bloggers, twitter followers and LinkedIn and Facebook aficionados.
Our Circuit Seed invention family is a good example of the power of internet communications. While we have attracted some large companies, we have yet to be very product specific on the impact. We are in the process of press releasing product impacts in the context of Circuit Seed. The reality is that Circuit Seed will form an important part of future smart phones. In fact, there are more than a half dozen specific ways that Circuit Seed will provide at least one manufacturer with huge advantage over all of its competitors. Just to keep it simple, Circuit Seed will have a dramatic impact on battery, sound, sensor, picture, display and RF/radio/antennae. All will be more precise, use less power, be cheaper and smaller, and will provide for faster design improvement cycles and time to market advantages. It’s huge and it’s real and Circuit Seed can be implemented now.
A key value driver is to have a smaller number of partner relationships providing companies with a monopolistic position in their respective markets. This, in turn, leads to superior returns for invention licensing. We are not in the business of licencing patents; we are in the business of competitive disruption and we want to foster relationships between our inventors and the innovative teams in deserving companies. As we have stated, volume patent licensing is an anemic business and regarded as just a tax or tariff. To extract value you need to provide distinct competitive advantage even if that is only for a few product cycles to allow market place or brand advantage. Anyone will tell you that the trade secrets and know-how for optimizing inventions is not captured in patents. Inventor continuity is key to ever more prosperous outcomes.
How InventionShare Builds Wealth
The key to invention monetization is really understanding the impact on industry and making sure you build relationships and share the story with the right executive pool. Traditional patent licensing companies build relationships with the patent teams under the general counsel in large corporations. With few exceptions, I can’t think of a worse place to connect with for game changing inventions. We pursue high end engineering, marketing and financial relationships. The corporation’s patent group is generally the last to be engaged; as they have little time and are usually overwhelmed with managing their internal portfolio.
Our analysis is done in terms of impact to the company, market share, revenue, gross margins, cash and earnings and, therefore, stock price. Almost all executives are compensated by financial KPIs and many earn options and are, therefore, extremely motivated to increase valuation. Importantly, stock prices move with perception and the price earnings ratios, the willingness for investors to pay for perceived growth and competitive advantage are key to share price. A low price to earnings ratio reflects low or no growth while a high PE represents past and future perception of growth and competitive advantage. Stories move stock prices, and really great stories really move stock prices. In a world of unprecedented competition the down side risk of losing a game changing invention family to a competitor is not tolerable. These are the kinds of conditions that lead to auctions. Financial impact analysis and research is key to InventionShare and being able to extract the optimum amount for the inventors, InventionShare and our shareholders.
Another crucial consideration is the modernization of information intelligence, communications, and collaboration and how small teams, like ours, can be effectively formed and achieve breakthrough productivity and results compared to larger businesses. InventionShare has been crafted by a senior team that knows how to engineer teams and outcomes with process, technology, resource and information leverage. One small but important example of our resourcefulness is anonymously using highly educated and lower cost labour in developing countries to perform specific internet based research projects which saves us weeks and months of internal time and are a fraction of the cost. Intelligence, agility and speed are powerful weapons to an intellectual asset business model. We must be able to constantly adjust to new realities, opportunities and use information leverage to our advantage.
To summarize, we accelerate the adoption of socially responsible game changing inventions to the benefit of inventors, companies, people and planet. If you need to put us in a box, we are an Invention Equity company, contrarian to angel and VC financing both of which we regard, on average, as high risk, low return investment vehicles. We are more akin to a real estate company and we have spent a substantial amount of time finding high value properties that can be sold or leased (licensed) to very large companies that need the invention properties to dominate their respective industries and drive earnings and shareholder value.
We are not taking a buy and hold position. We seek returns on our properties within 12 to 24 months and we distribute the majority of free cash flow to our shareholders. We are diversified, conservative and the entire team is financially motivated for positive financial outcomes. Finally, our business model has been shaped by a very experienced team and that model is a reflection of market conditions that we expect to hold true for a long time. Having said that, we feel strongly that the big three in our current portfolio will meet all of our forecasts without the addition of another invention. Because each invention family provides so much vertical and horizontal diversification we can achieve the benefits of monopolistic pricing power without the risk.
There is a lot to like about InventionShare. Social responsibility based investment is not just great for personal financial returns - we believe it’s an extremely fast model for global adoption and speed is now a societal imperative. We hope you share in our vision and welcome your participation in our win-win model for all, including people and planet. What’s not to like?