German fund IPB AG and Israeli patent attorneys Luzzatto and Luzzatto have teamed up to provide solutions to the shortage of capital for early-stage ventures. IPB, which manages €200 million, will provide the capital and know-how, and Luzzatto will suggest Israeli cleantech start-ups.
The idea is to find Israeli researchers with ideas or patents, buy them, finance the development ideas, and bring them to market. The model is different from the usual venture capital model in which a fund invests in a company in exchange for a holding in it.
IP was established as a spin-off from Deutsche Bank AG (NYSE: DB; DBAX: DBK), which is also the fund's anchor investor. Based in Hamburg, IBP specializes in commercializing patents, managing their development, and bringing them to market. The company operates in the chemcials and food, new materials, pharmaceuticals/biotech, and renewable energy industries.
In an interview with "Globes" Luzzatto partner Dr. Kfir Luzzatto and advisor Amir Palmieri, explained the new model. Luzzatto said, "We looked for an alternative to the venture capital model, which is not suited for every situation, given that the amount of capital available for financing ventures is shrinking. Since our group specializes in intellectual property and the commercialization of patents, we believe that this is the direction. It took time for the idea to ripen, but we found that cooperation with the German fund, which is seeking opportunities in Israel, was the way to go."
Palmieri said that although IPBinvests in several industries, its activity in Israel would focus on renewable energy. "The industry is picking up worldwide. Environmental problems are greater than a year ago. IPB knows that Israel has know-how that can be exploited, and we decided to go for it."
"Globes": How will the partnership work?
Palmieri: "We're looking for new ideas and patents. The fund buys the patents and developments through its internal network. After there's a product, it sells it. IPB does not promise to do so, but it prefers keeping the patent owners at the company, close to the development stages. The entrepreneurs receive an initial payment for the patent, and royalties on sales of a future product, and even a portion of the final sale."
For whom is the model suited?
Kfir Luzzato: "Definitely not for companies with scores of employees, although large companies can spin off an idea, which would suit the model. We're seeking entrepreneurs and researchers with intellectual property that can be realized. We'll invest about €2 million in buying each intellectual property."
How will you find ventures?
"Through our connections. Universities have interesting projects, whose potential is not realized. Many scientists and entrepreneurs have no address."
What about entrepreneurs' dreams of a huge exit? You may be offering something more realistic, but you're emasculating the fantasy.
Palmieri: "Entrepreneurs can make a three-fold profit. They get paid for the patent, and they get royalties and a percentage of the final sale. We know that with the venture capital model, entrepreneurs' holdings get diluted over the years and they are left with very little at the end."
Palmieri said that the idea was to find ventures that do not need a huge investment or many years of development. "The model is suitable for ideas that can be commercializing within three years at the most," he says.
Luzzatto adds, "We may not promise a huge exit, but there's a prize. It's not an empty promise. I believe that researchers and entrepreneurs can achieve their dreams, see their ideas working at great companies and they'll be remembered. I call on entrepreneurs and intellectual property owners to contact us."
Published by Globes [online], Israel business news - www.globes-online.com - on August 23, 2010
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