I attended an interesting event on pension-led funding last week. Organised by Clifton Asset Management, it featured three entrepreneurs (all of whom had taken part in the BBC TV programme Dragon’s Den) who have tapped their pensions to fund their businesses.
One of them was Tony Curtis, who runs Alago, which makes heated gloves (pictured below) for sport and leisure use (to declare an interest: I was given a pair of its cycling gloves). Curtis is a former teacher and had accrued a pension pot of some £60,000 (one of the perks of teaching in the UK is the generous pension scheme).
He borrowed just under half of this, with the loan guaranteed by the value of his intellectual property - which, at the time, consisted of one UK patent application and two unregistered trade marks. As Curtis put it to me: “I really had to ask myself: are you prepared to back yourself? If not, how could I ask anyone else to?”
Clifton has so far arranged some 2,500 similar deals with businesses that have a total turnover of £1.5 billion. They are not all structured in the same way: the pension may lend money against the business, for example, or there could be a sale and leaseback of IP rights involving royalty payments. But all are based on the value of the intellectual property and depend on the entrepreneur having a big enough pension pot to borrow from. Clifton chairman Adam Tavener claims pension-led funding is “the most rapidly growing non-bank funding solution” in the UK, but is held back because most entrepreneurs don’t know that their intellectual property has significant value. It’s also impossible, says Tavener, in most other countries for financial regulatory reasons.
More broadly, pension-led funding is part of a trend in alternative financing that includes peer-to-peer lending and crowd-funding: Gwilym Robertsand Mark Nowotarski looked at some examples of the latter, as well as the IP issues raised, in “The IP issues of crowdfunding” in our May issue.
These alternative models have grown partly because funding from banks has dried up in the past few years. But banks could now be catching up – at least that’s what Peter Sands, group chief executive of Standard Chartered believes. In an article in the Financial Times this week (“Banking is heading towards its Spotify moment”) he argues that banks need to embrace technology-driven innovation: “By making everything digital, exploiting the power of big data and the ubiquity of mobile communications, we see huge opportunities to enhance the value to our customers, to increase efficiency and to manage our risks more effectively.”
I’m sure the prospect of new types of financing will be welcomed by IP owners, particularly in start-up companies. But it’s mixed news for those who specialise in IP valuation, a notoriously precarious task: on one hand, they can expect to see a lot more work; on the other, their jobs could get a lot more difficult – and more risky.