Her CEO Journey™: The Business Finance Podcast for Mission-Driven Women Entrepreneurs

Weekly show where my featured guests and I explore the financial and business challenges women face on the entrepreneurial journey to success. You'll hear them talk about the money side of their businesses in ways you've always wanted to know about, but wouldn't dare ask. They openly share their disappointments, failures, successes, and everything in-between as they grew sales ranging from 6 to 9 figures. Knowing where your business stands financially helps you make critical decisions with confidence. It's simply the best way to be sure you grow a business that fuels the life you want to live.

https://www.christinasjahli.com/

subscribe
share





episode 131: Growing Your Business with IP-Backed Financing - The Journey of Lally Rementilla (Intellectual Properties Series) [transcript]


Many companies don’t realize the value of their intellectual property. Leveraging assets, such as an IP portfolio, is necessary for scaling businesses for growth. These days, venture capital investors, like BDC Capital, open opportunities for companies to receive IP-backed financing.

In this episode of Her CEO Journey™, Lally Rementilla joins us to explain how IP-backed financing can scale your business. She also shares with us how her company provides financial support to businesses through their processes of valuation of IP portfolios.

Tune in to learn how IP-backed financing can help grow your business!

Here are three reasons why you should listen to the full episode:

  1. Find out about the different types of IP-backed financing for intellectual property protection.
  2. Learn about the valuation process and how to create an IP portfolio.
  3. Determine the key factors in acquiring financing deals, protecting your intellectual properties and assets, and earning patents.

Episode Highlights

  • [05:51] Lally’s Journey
  • [09:15] Joining Quantius and BDC Capital
  • [12:30] Deploying Funds
  • [14:37] Attracting Foreign Companies
  • [15:38] Defining Intellectual Property
  • [17:14] Debunking Misconceptions on Intellectual Property Protection
  • [19:31] BDC on Expanding Their IP-Backed Financing
  • [21:05] Providing IP-Backed Financing
  • [24:55] The Three Methods of Valuing Assets
  • [29:22] Preparing for IP-Backed Financing Funds
  • [31:42] Doing a Scenario Analysis
  • [35:33] Creating an IP Portfolio and Strategy
  • [37:36] Other Factors That Influence Debt Financing
  • [41:14] On Reporting Requirements
  • [43:35] Structuring a Financing Agreement
  • [46:42] Other Financing Costs to Consider
  • [48:59] How Long Does IP-Backed Financing Take?
  • [53:26] Blazing the Trail for IP-Backed Financing

Enjoyed This Podcast?

Write a review and share this with your friends.

Connect With Me

Ready to transform your purpose into an impactful business financial story, profit, and joy? Schedule a chat with me at any time.

Resources

  • Demystifying Intellectual Property: IP as a Tool for Protection and Growth - The Journey of Patent Lawyer Isi Caulder

  • Build Your Business Reputation: Learn How to Protect Intellectual Property and Use IP Strategies - The Journey of Cassandra Derham

  • Unlocking Financial Opportunities with IP: How to Patent an Idea - The Journey of Susan Blanchet

  • Download the Forecasting Guide so you can create a better and improved financial forecast for your business!

  • BDC Capital: English | French

  • Canadian Intellectual Property Office


share







 2021-09-02  55m
 
 
00:04  Lally Rementilla
What could be
00:04
the possible collateral value of
00:07
their IP portfolio? Or in the
00:07
case of, let's say, in equity
00:11
financing, how does their IP
00:11
actually drive the valuation of
00:17
the company? In different other
00:17
countries and in different sort
00:21
of areas, there may be other
00:21
ways in which other capital
00:25
providers provide IP-backed
00:25
financing. Ours is what I call
00:29
more of a growth oriented view.
00:29
We're providing working capital
00:32
to help grow a company.
00:35  Christina Sjahli
Let's say you
00:35
are a founder of a growth stage
00:35  Lally Rementilla
Oh, it's my
00:35
pleasure to be here today. Thank
00:38
company with a few intellectual
00:38
properties and you have been
00:38
you very much for inviting me.
00:42
thinking, "What is the value of
00:42
all of this intellectual
00:46
property or IP? Is there any
00:46
commercial lender that would be
00:52
willing to finance your business
00:52
based on your IP portfolio?" If
00:57
you have been thinking about
00:57
this, then this particular
01:00
episode is for you.
01:02
Today's episode is the fourth
01:02
episode of The Intellectual
01:06
Property Podcast Series. Over
01:06
the last few weeks, starting
01:10
with Episode 128, we share with
01:10
you the different types of
01:14
intellectual properties, the
01:14
step you need in creating IP
01:19
strategy, how to protect this
01:19
asset, and a journey of a female
01:23
founder who is in the trenches
01:23
in building her IP strategy to
01:28
get financing. Now, it's time
01:28
for us to share with you how to
01:32
exactly leverage those IP
01:32
strategy and cash in your ideas
01:37
to grow your business to the
01:37
next level. Today's guest is
01:41
Lally Rementilla. She is the
01:41
managing partner at BDC Capital
01:46
located in Toronto, Canada.
01:46
Lally is an expert in IP-backed
01:50
financing, and she believes
01:50
IP-rich companies have a unique
01:54
portfolio, global customer base,
01:54
and strength to survive an
01:59
economic downturn. Together with
01:59
her team, they've put in the
02:03
time to go very deep into
02:03
understanding and appreciating
02:08
businesses' IP and intangible
02:08
asset. They provide the right
02:12
IP-backed financing for growth
02:12
stage businesses.
02:15
In this episode, Lally shares,
02:15
among others, the possible type
02:20
of IP-backed financing out
02:20
there, the process to value an
02:24
IP portfolio, the type of
02:24
IP-backed financing that BDC
02:28
Capital provides to growth stage
02:28
companies within Canada and
02:33
outside Canada, and the benefit
02:33
of scenario analysis in any
02:37
financing deals. If you are not
02:37
located in Canada, don't jump to
02:42
the conclusion that this episode
02:42
is not relevant to you because
02:46
this type of lending structure
02:46
is not specific to Canada. You
02:51
may find an alternative
02:51
commercial lender within your
02:55
region, so take the time to
02:55
listen until the end because
02:59
this episode will provide you
02:59
useful tips. When you approach
03:03
an alternative commercial
03:03
lenders, you will be able to ask
03:08
the right questions.
03:09
You're listening to Her CEO
03:09
Journey, the business finance
03:13
podcast for mission driven women
03:13
entrepreneurs. I'm your host,
03:17
Christina Sjahli. If you are new
03:17
here, a big warm welcome. If we
03:21
are not connected on LinkedIn,
03:21
please reach out and say hi
03:25
because that's where I hang out
03:25
and share my business finance
03:30
tips. If you have been listening
03:30
to this podcast for a while, and
03:34
you are a regular listener, I
03:34
want you to know I appreciate
03:38
you. My podcast won't be around
03:38
without your support. This is a
03:42
free weekly show where my guests
03:42
and I want to inspire you to
03:47
balance between mission and
03:47
profit, to create an impact in
03:51
this world, and to achieve
03:51
financial equality through your
03:55
business for good.
03:56
Scenario analysis is one of
03:56
those tools that every founder
04:00
should have within their
04:00
business, especially if you are
04:03
looking for debt financing.
04:03
We've talked about it inside
04:07
this episode. It is one of those
04:07
financial tools where you can
04:11
assess financial strength and
04:11
agility. However, before you can
04:16
get to scenario analysis, you
04:16
need to build the foundation.
04:19
The foundation is about
04:19
forward-looking view of your
04:23
financial result, what we call
04:23
financial forecasting. If you
04:28
are at a stage where you realize
04:28
you need to build a robust
04:32
financial forecast but don't
04:32
know where to start, we have a
04:35
solution to your problem.
04:35
Download the Forecasting Guide
04:39
we have created for you and
04:39
start creating a better and
04:43
improved financial forecast. You
04:43
can find the link to this guide
04:46
in the show notes. Let's say
04:46
after using the guide you think,
04:50
"Hmm, this guide helps but I
04:50
think it is better if I focus my
04:54
time on doing what I really love
04:54
which is building and growing my
04:58
business. I know business
04:58
finance is important, but I
05:02
don't love it." That's when we
05:02
are here to partner with you. We
05:07
understand building a proper and
05:07
robust financial forecast takes
05:11
time, accountability, curiosity,
05:11
and passion for your business.
05:16
Connect with us at
05:16
christinasjahli.com/lets-chat.
05:21
Now, let's find out Lally's CEO
05:21
journey.
05:26
Lally Rementilla, welcome to Her
05:26
CEO Journey. It's a pleasure to
05:30
have you here today.
05:36  Christina Sjahli
Before we dive
05:36
into what is intellectual
05:40
property-backed financing, let's
05:40
start with your journey first
05:44
that leads you to becoming an
05:44
expert in IP-backed financing.
05:48
And then now you are a managing
05:48
partner with BDC.
05:51  Lally Rementilla
Surely, well,
05:51
this is definitely something
05:54
that I would consider a very
05:54
non-traditional path. I started
05:59
my career on really what they
05:59
call the operating side of the
06:04
business. I'm a two-decade
06:04
veteran of the technology,
06:08
media, and telecom sector,
06:08
primarily working as a senior
06:13
finance head or CFO of startups,
06:13
scale-ups and multinational
06:19
companies in that space. In
06:19
those two decades, I saw a lot
06:23
of inefficiency in the market.
06:23
And I witnessed firsthand the
06:27
difficulty of how it is to raise
06:27
debt financing, especially when
06:33
you're dealing with very IP-rich
06:33
companies. Very, I'd say
06:37
commonly, I would go to my
06:37
banker and my banker, I asked
06:42
for a loan, and my banker would
06:42
say, "Well, Lally, you've got
06:45
all these losses. Lally, you
06:45
don't have any hard assets. You
06:50
don't have a lot of inventory.
06:50
You don't have a building. You
06:53
don't have any land. You have
06:53
very little in the form of
06:57
accounts receivables. And so
06:57
it's very difficult for us to
07:01
extend some form of finance to
07:01
you."
07:03
With this reality in mind. I
07:03
thought that, how can it be that
07:09
companies that are going really
07:09
fast, they're exporting, they're
07:13
rich in intellectual property,
07:13
how, how can it be that it's
07:16
very difficult for them to get
07:16
financing? And so around, I'd
07:21
say 2013. Around that time, I
07:21
told myself, I'm going to find a
07:27
way of really addressing this
07:27
issue. And if there's one thing
07:31
I can do, and so I sort of set
07:31
up what they call a Big Hairy
07:35
Audacious Goal for myself, or a
07:35
BHAG, it's that by the time I
07:39
turn 50 years old, I want to be
07:39
able to raise $100 million fund
07:44
to address this. And so I went
07:44
on, I was still working in a
07:49
technology company at that time.
07:51
But in 2015, I had met this team
07:51
that had founded a firm called
07:57
Quantius. And I went actually to
07:57
meet with them to try to get a
08:01
loan and coming out of the
08:01
meeting, they wanted to hire me
08:04
as their CFO. And what Quantius
08:04
did was to essentially address
08:09
this issue that I had faced in
08:09
my career as an operator. And so
08:14
what they've developed was this
08:14
unique ability to value
08:18
intellectual property,
08:18
especially in the form of
08:20
patents, and be able to lend
08:20
against it. So I made the
08:26
decision that this is going to
08:26
be my opportunity to really make
08:29
a difference. This is something
08:29
I've always wanted to do; it's
08:32
going to accelerate my ability
08:32
to reach my BHAG. And therefore,
08:37
at the end of 2015, I joined
08:37
Quantius as the CFO, and we
08:41
launched a fund and started
08:41
going out into the market in
08:46
2016. And then through the
08:46
course of Quantius's this
08:50
journey, I actually became the
08:50
CEO of the company. So from 2016
08:56
to 2019, we were very much
08:56
focused on building our track
09:01
record, developing our own
09:01
portfolio of very high-growth,
09:06
knowledge-based industry
09:06
companies and backing them and
09:11
making term loans of somewhere
09:11
between one to five million
09:14
dollars each.
09:15
So once we got that three-year
09:15
track record in 2019, we were
09:21
pretty much ready to start
09:21
looking for institutional
09:24
capital. Because it's very
09:24
common in the asset management
09:29
or venture capital industry that
09:29
you start off with your first
09:32
fund. And then try as much I
09:32
mean, we were entrepreneurs
09:36
ourselves, and therefore, we put
09:36
our own money in and we put our
09:40
friends and families money in
09:40
and then started developing an
09:44
investor base of high-net-worth
09:44
individuals and a couple of
09:47
family offices. But it is clear
09:47
that if we really wanted to help
09:51
a lot more companies, then we
09:51
needed to have a larger balance
09:54
sheet or a larger capital pool
09:54
behind us. So once we got our
09:59
three-year track record In 2019,
09:59
I started having discussions
10:03
with a lot more on what you call
10:03
institutional investors. And one
10:07
of those investors that I was
10:07
speaking with was the BDC.
10:11
As it happens, in January, last
10:11
year in January 2020, the BDC,
10:17
through BDC Capital, actually
10:17
wanted to launch their own
10:20
IP-backed financing fund. And
10:20
they saw the synergies between
10:25
what we were doing at Quantius
10:25
and how our team was a very high
10:29
performing team. We were already
10:29
out in the market. We've already
10:32
shown a very successful, more
10:32
than three-year track record in
10:36
doing IP-backed financing. And
10:36
then they had the capital to
10:40
really make this happen. And so
10:40
by marrying sort of those two
10:45
strengths, we decided just when
10:45
the pandemic was declared, I kid
10:50
you not, on around March 2020,
10:50
that we decided we're just going
10:54
to join our forces, my team at
10:54
Quantius was going to join the
10:58
BDC.
10:58
And that happened in May, during
10:58
a pandemic, and make this
11:03
happen, because it makes such a
11:03
big difference for Canadian
11:07
companies. And it was just
11:07
something that we knew in that
11:11
sort of original Quantius group
11:11
that we needed to really build
11:14
the capital base. And now with
11:14
the reach that the BDC has, and
11:20
having clients, I think we have
11:20
about more than 64,000 clients
11:25
and more than 2400 employees all
11:25
across the country, that it is
11:30
going to be a way to make an
11:30
impact in the the
11:34
knowledge-based ecosystem in
11:34
Canada. So we joined I remember
11:38
this May 4, so May the fourth be
11:38
with you?
11:40  Christina Sjahli
Yeah. I know.
11:42  Lally Rementilla
It was our
11:42
first day at the BDC, there was
11:45
five of us. And we each all got
11:45
Purolator packages with laptops
11:50
and phones coming into our in
11:50
our homes. For the first three
11:55
months, we were just trying to
11:55
learn the bank systems, working
11:59
with our internal supporting
11:59
teams, such as our marketing
12:02
department to get all the
12:02
necessary materials in place to
12:06
launch the fund. And so we did
12:06
launch the fund in July. I
12:11
remember this July 16th 2020,
12:11
that was a Thursday, we made it
12:15
clear to the I guess, to the
12:15
country that we have $160
12:18
million fund that's dedicated to
12:18
help IP-rich companies across
12:23
the country.
12:23  Christina Sjahli
So how much
12:23
out of the 160 million fund that
12:28
you have deployed by now?
12:30  Lally Rementilla
we don't
12:30
announce the amounts. But what
12:33
we have done is we've announced
12:33
our first deal, and that was
12:36
announced just last February.
12:36
It's to a Vancouver-based
12:40
company called Novarc
12:40
Technologies in the advanced
12:43
manufacturing sector or
12:43
industry. And what they've done
12:47
is that they've invented the
12:47
world's first collaborative
12:50
robot for welders.
12:52  Christina Sjahli
Wow.
12:53  Lally Rementilla
So yes, for
12:53
welders and one of the things to
12:57
know is that there's actually a
12:57
global talent shortage for
13:01
welding. And it's very difficult
13:01
to find skilled welders, and
13:05
therefore, this is one way by
13:05
which the very sort of limited
13:10
pool of welders that are
13:10
available there to us can
13:14
enhance their performance and
13:14
their productivity, and also
13:17
have a safer work environment by
13:17
essentially having what they
13:21
call a cobot or collaborative
13:21
robot help them perform their
13:25
tasks. We funded Novarc with a
13:25
$2.6 million credit facility.
13:31
And that's something that we
13:31
believe can really help get to
13:34
profitability and execute on a
13:34
strategy that they have on
13:39
working with a global
13:39
distributor in the welding
13:43
space.
13:45
One of my BHAGs for this fund,
13:45
is how can we also create an
13:51
environment in which IP-rich
13:51
companies are actually attracted
13:56
to Canada because of the
13:56
financing that they provide, as
14:00
well as all the other great
14:00
ecosystem partners that we have.
14:05
So one of my BHAGs here is that,
14:05
hey, if I can even attract
14:09
foreign companies into Canada,
14:09
and be part of our portfolio,
14:13
that would make me very happy as
14:13
well, because it's also shown
14:17
how Canada has elevated itself
14:17
into an ecosystem that is very
14:23
open to and supportive of
14:23
IP-rich companies.
14:26  Christina Sjahli
As you are
14:26
talking that you want to attract
14:28
foreign companies, technology
14:28
companies coming here, do you
14:31
mean that you want to invest in
14:31
them to grow, to expand their
14:35
market to Canada?
14:37  Lally Rementilla
Yes. So what I
14:37
want to be able to do is
14:40
actually tell them, "Hey, why
14:40
don't you come to Canada, start
14:43
an office here, create Canadian
14:43
IP, hire very talented
14:47
Canadians, and really be or make
14:47
Canada your beachhead for
14:53
whatever IP-rich, intellectual
14:53
property-backed sort of
14:57
operations that you have?" One
14:57
or the other case studies that
15:01
I've seen, and I'm actively
15:01
speaking with a lot of different
15:04
other companies, are Canadian
15:04
companies that have actually or
15:07
Canadian pallant that have moved
15:07
to the US, and are now actually
15:12
looking to come back to Canada,
15:12
and to bring their company, and
15:15
to bring their IP with them. So
15:15
that would be another great case
15:19
study. And again, it's sort of
15:19
in BHAG territory for me.
15:23  Christina Sjahli
Maybe people
15:23
don't realize that they have
15:25
intellectual property. So what
15:25
is considered intellectual
15:29
property? And what are the
15:29
common misconception that lead a
15:33
business not realizing they
15:33
actually have intellectual
15:37
property?
15:38  Lally Rementilla
I'd say the
15:38
most common and most simple
15:41
definition for what intellectual
15:41
property is, is essentially a
15:46  creation of the mind
something
15:46
that comes out of ideas, and
15:51
inventions of the mind. Now
15:51
within intellectual property are
15:56
sort of what we always talk
15:56
about when when people talk
16:00
about IP is intellectual
16:00
property rights. So these are
16:05
what they call state driven
16:05
monopolies, or given monopoly.
16:08
So what that means is that a
16:08
particular government will give
16:12
you one of these intellectual
16:12
property rights, which prevent
16:15
other people or companies from
16:15
using it, to manufacturing it,
16:20
or selling it. So an example of
16:20
this would be a patent, a
16:25
trademark, a trade secret, a
16:25
copyright, or industrial design.
16:30
So it is the sort of
16:30
intellectual property rights,
16:34
and more specifically patents,
16:34
that really drive what we do at
16:39
the BDC IP-backed financing
16:39
fund. So we take those patents
16:43
and really assess them, analyze
16:43
them, and value them to really
16:47
help us develop an investment
16:47
thesis or conviction around
16:52
making an investment into a
16:52
company. And then on top of
16:57
intellectual property rights,
16:57
there are also other form of
17:01
what we call intangible assets
17:01
that a lot of companies tend to
17:05
have. So that could be in the
17:05
form of software, know-how,
17:10
brand, client lists, data, and
17:10
exclusive licenses.
17:14
When it comes to misconceptions.
17:14
One of the things that a lot of
17:19
companies tend to don't
17:19
understand is the fact that
17:23
again, IP or intellectual
17:23
property is not just about
17:27
patents. It's about other forms
17:27
of intellectual property that
17:31
you should also be looking into,
17:31
such as trademarks, and trade
17:36
secrets, and copyright to really
17:36
understand how you can build a
17:40
portfolio that protects your
17:40
business. It doesn't have to be
17:44
too deep into technology. I
17:44
mean, you don't have to be a
17:47
technology company to file for
17:47
an IP right. It can be the form
17:51
of a trademark, and really
17:51
owning your name and owning your
17:54
brand, which in some cases is
17:54
very important for, let's say,
17:58
more services-based companies.
18:01
The other misconception is that
18:01
there's this thing called trade
18:05
secrets and trade secrets have
18:05
to be protected. And companies
18:10
have to take very purposeful
18:10
steps to actually protect these
18:16
secrets. So that may be in the
18:16
case of some very sophisticated
18:21
companies that we've seen, may
18:21
have a secret formula, where
18:25
they keep it lock and key. It's
18:25
in a document that has a
18:28
password protection. It's
18:28
encrypted. Not everyone in the
18:33
company has access to it. The
18:33
only access is given to people
18:37
who really need to understand
18:37
and know what this trade secret
18:40
is. Because once you actually
18:40
start telling companies about a
18:44
particular trade secret, or once
18:44
it's sort of outside the realm
18:48
of who needs to know, it
18:48
actually loses its trade secret
18:52
value. So those are, I would
18:52
say, the very important things
18:56
to note is that it's not all
18:56
about patents, and trade secrets
19:00
are almost sometimes as
19:00
important, and can even be more
19:03
important than some of the more
19:03
explicit forms of IP.
19:07  Christina Sjahli
Now, you
19:07
mentioned earlier about tangible
19:10  assets
client lists, brand. And
19:10
then you also mentioned about
19:14
trademark and the fact that this
19:14
is not only for technology
19:18
business. Sometimes
19:18
service-based business can do
19:21
this as well. But does your
19:21
company do this type of
19:27
IP-backed financing on
19:27
trademark, for example?
19:31  Lally Rementilla
So currently,
19:31
right now, we are not set up for
19:34
it because IP-backed financing
19:34
does tend to rely on certain
19:40
amount of expertise. Where we're
19:40
very good at right now, as far
19:44
as my fund is concerned, is in
19:44
patents. And we are also
19:49
exploring other forms of IP
19:49
which we could value. And
19:55
actually it's other forms of
19:55
intangible assets which we could
19:58
value. And so, some other areas
19:58
we will be exploring are in the
20:02
realm of data, proprietary
20:02
software, and even, let's say
20:07
music royalties. So we're not
20:07
actively working on those. Those
20:12
are additional steps we will
20:12
look at and on a more
20:16
opportunistic basis. But it is
20:16
the intent to make sure that
20:20
over time, were able to take
20:20
other forms of IP or intangible
20:25
assets as part of our program.
20:27  Christina Sjahli
At the very
20:27
beginning of this conversation,
20:30
you even mentioned, the company
20:30
that you worked for in the past,
20:33
you went to the bank, the bank
20:33
is looking something like land
20:36
or something like building, but
20:36
IP itself is actually an asset.
20:41
When I think about IP-backed
20:41
financing, the first thing that
20:44
came to mind is actually getting
20:44
a loan from a BDC, or you know,
20:51
or IP-backed financing, and use
20:51
that IP, the value of that IP to
20:57
back the loan. That's what I'm
20:57
thinking. But is there like,
21:02
other type of IP-backed
21:02
financing?
21:05  Lally Rementilla
So IP-backed
21:05
financing, I'd say, first of
21:08
all, it's a very new phenomenon.
21:08
There are still a lot of
21:10
different new business models
21:10
that are coming out in sort of
21:14
just more general way of doing
21:14
things. So I'd say every month,
21:18
there's probably a new twist on
21:18
how IP-backed financing is done.
21:23
And there are different
21:23
companies, different lenders,
21:26
different funds that all do some
21:26
form of IP-backed financing. At
21:31
its core, and to what you said,
21:31
which is, I'd say, pretty much
21:35
bang on, it's a form of
21:35
financing, where you're
21:38
attributing value to the
21:38
intangible assets of a company
21:43
and using it to make your
21:43
investment decision.
21:46
Now, the way we do it at the BDC
21:46
is that we analyze and value a
21:52
company's patent portfolio. And
21:52
that analysis and valuation
21:56
discipline or exercise allows us
21:56
to generate insights on really
22:01
understanding the uniqueness of
22:01
the company, how it's
22:04
differentiated, how they've
22:04
created a moat, or how they've
22:09
protected their business model.
22:09
And in the case of debt, what
22:13
could be the possible collateral
22:13
value of their IP portfolio? Or
22:18
in the case of, let's say, an
22:18
equity financing, how does their
22:22
IP actually drive the valuation
22:22
of the company?
22:27
In different other countries and
22:27
in different sort of areas,
22:31
there may be other ways in which
22:31
other capital providers provide
22:35
IP-backed financing. Ours is
22:35
what I call more of a
22:38
growth-oriented view. We're
22:38
providing working capital to
22:41
help grow a company. There are
22:41
some other IP-backed financing
22:46
clients that are more what they
22:46
call a royalty base. This
22:49
happens a lot in the
22:49
pharmaceutical industry, where
22:51
they're doing drug royalties, as
22:51
an example. So they are looking
22:56
at the patents of a life
22:56
sciences company, understanding
22:59
what the likelihood of their
22:59
recurring cash flows to be and
23:03
how long these patents are valid
23:03
for, and then understanding what
23:08
their sort of their royalty
23:08
revenue stream would be going
23:11
forward.
23:12
Another type that we see a lot
23:12
is also litigation finance. So
23:16
this is one wherein companies
23:16
are actually able to borrow in,
23:22
especially companies that have a
23:22
large patent portfolio, are able
23:27
to borrow money so that they can
23:27
litigate and claim infringement
23:34
on other companies. And what
23:34
happens is that that money is
23:37
put to use to actually fund the
23:37
litigation proceedings. And
23:41
then, at the end, if the company
23:41
ends up winning in the form of
23:46
damages or a settlement from the
23:46
other company that they're
23:50
healing, then they use that to,
23:50
essentially, pay off the
23:55
litigation finance loan. So
23:55
there's a lot of different
23:59
business models. And it's going
23:59
to be very important for a
24:02
company to understand which kind
24:02
of IP-backed financing model
24:08
they want to use for what
24:08
they're trying to achieve.
24:11  Christina Sjahli
Because it's
24:11
an asset, there has got to be
24:14
value assigned to that asset.
24:14
This is where I had seen
24:20
struggles, because my past
24:20
career, I worked in mining. And
24:25
in gold mining, sometimes we
24:25
have this big property, and then
24:30
we would be saying, "Here's how
24:30
much gold that we can dig out
24:34
from that property. And then
24:34
based on the market price of the
24:38
gold right now, this is the
24:38
value of the property in a big
24:43
picture." Now, I'm assuming that
24:43
intellectual property is
24:48
something similar, but I'm
24:48
really curious, like, how do you
24:53
value intellectual property?
24:55  Lally Rementilla
So it's good
24:55
that you told me. I didn't
24:57
realize that you started or had
24:57
a career in mining so that
25:00
that's a very, actually a very
25:00
good analogy, because there's a
25:03
lot of unknowns when it comes to
25:03
intellectual property. And I'd
25:07
say let's focus really on
25:07
patents because that's what we
25:11
do. And that's the kind of
25:11
valuation that we conduct. So in
25:15
the case of patents, first of
25:15
all, patents are time-limited.
25:19
So there's only about a 20-year
25:19
period in which you can hold a
25:23
patent, I'm making it very sort
25:23
of simplistic here. The second
25:27
thing, too, is that it's a very
25:27
opaque market. There's no sort
25:28
This sort of evaluation
25:28
discipline does use three types
25:31
of stock exchange where you
25:31
know how many patents are being
25:36
old and bought in whatever p
25:36
ice. In some cases where there i
25:40
probably a public market t
25:40
ansaction, where a public c
25:44
mpany may have acquired a
25:44
other public company or a p
25:47
ivate company, and they d
25:47
clare what the value is, and m
25:49
ybe you can get some sense. B
25:49
t it's, for the most part, a l
25:52
t of these patent buying or s
25:52
lling transactions, they don't g
25:57
t reported. And so, it's really
25:57
ery difficult to understand
26:02
hat is the value of a patent
26:02
ortfolio.
26:11
of methods, which are generic
26:11
methods for valuing assets. And
26:16
they're what we call the
26:16
cost-based method, which is
26:19
trying to understand how much
26:19
it's going to cost for someone
26:23
to create that patented
26:23
technology as an example. The
26:27
second method is the
26:27
income-based method. And within
26:31
that method, there are different
26:31
ways of doing it. But it's
26:34
essentially very similar to what
26:34
you did in the mining industry,
26:38
which is looking at whatever the
26:38
future cash flows of a
26:42
particular asset could be. And
26:42
then the third method is what we
26:47
call the market method, which is
26:47
trying to understand what has
26:52
been the transaction price of
26:52
very similar patents that have
26:58
been sold either in the public
26:58
markets or in the private
27:01
markets.
27:02
So as you can see, it's in a
27:02
very opaque market. It's very
27:06
difficult to do that. And so,
27:06
it's a very specialist industry
27:11
out there of people or firms who
27:11
can actually do these kinds of
27:16
valuations. And what we've also
27:16
seen is that the valuations can
27:20
also be different based on what
27:20
the intended use of that
27:24
valuation is. So meaning, if
27:24
you're trying to sell your
27:30
patent portfolio or your
27:30
company, then there does tend to
27:35
be, I would say, a preference
27:35
for using something more like an
27:39
income method. Because you're
27:39
trying to get the high value and
27:43
you're looking at to a buyer,
27:43
what revenues they're going to
27:46
be able to get from that
27:46
technology portfolio. In the
27:50
case of let's say, insurance
27:50
companies, if they had to insure
27:55
a particular I guess, IP
27:55
portfolio, then they're going to
27:58
look at a more conservative view
27:58
of this, right? Because it's
28:01
going to be very critical for
28:01
them to really look at what we
28:05
call a more actuarial-based
28:05
valuation type.
28:08
And so, as we go about valuing
28:08
portfolios as part of the BDC,
28:14
IP-backed financing practice,
28:14
what's more very important for
28:18
us, it's really just going
28:18
beyond the valuation itself. And
28:22
also, understanding how this
28:22
particular patent portfolio
28:27
actually helped make a company
28:27
unique. And how does it really
28:30
protect the market share for the
28:30
products or services that this
28:34
company delivers to the market?
28:34
And also, how will it drive
28:40
future value or monetization
28:40
potential for them? So as an
28:45
example, if you look at
28:45
companies that have, let's say,
28:49
patents, but are collecting a
28:49
lot of data as part of their
28:52
overall IP strategy, we could
28:52
argue that there's going to be
28:57
increasing value in that
28:57
portfolio over time because the
28:59
more data they collect, then the
28:59
more data they can monetize. And
29:04
they can also have more revenue
29:04
streams in the future.
29:08  Christina Sjahli
What can
29:08
business owner be prepared once
29:12
they approach of fund for their
29:12
IP-backed financing? there's not
29:17
a significant surprise in terms
29:17
of the value.
29:22  Lally Rementilla
Right? So one
29:22
thing to note is that if a
29:25
company comes to us and would
29:25
like us to look into their
29:30
business plan and assess what
29:30
kind of IP-backed financing we
29:35
could give, when we actually go
29:35
through the valuation exercise,
29:38
that valuation is actually not
29:38
shared with a company at all.
29:42
One of the reasons for that is
29:42
that again, going back to my
29:45
previous point, when we conduct
29:45
evaluation, it's to answer
29:50
specific questions that we have
29:50
to make an investment decision.
29:57
In the case of a loan, then one
29:57
of the questions that we have
30:01  is
What would be the possible
30:01
liquidation value of this patent
30:08
portfolio, if for some reason,
30:08
the company does not achieve
30:12
their plan, and may need to sell
30:12
it? And so, that value does tend
30:17
to be conservative because it's
30:17
assuming the fact that you're
30:21
trying to liquidate something,
30:21
an asset within somewhere
30:24
between 60 or 90 days.
30:27
And so, I can say, is a very
30:27
sensitive conversation to
30:30
actually provide a valuation to
30:30
a company because, and I can
30:34
speak very well, having been in
30:34
an operator's shoes that there
30:39
is a large amount of sweat,
30:39
equity, and sort of recognition
30:45
in the fact that entrepreneurs
30:45
have put in a lot of their time,
30:49
their energy and focus into
30:49
creating these intellectual
30:53
property portfolios. And I would
30:53
say, they always have a better
30:56
view of their business. So they
30:56
know where the opportunities are
30:59
and what the markets have are.
30:59
In our case, as lenders or
31:03
investors, we're also very more
31:03
risk cognizant, and we're always
31:07
looking at possible risks. And
31:07
therefore there's, I would say
31:11
that there does tend to be that
31:11
big disparity of what the
31:16
entrepreneur believes their
31:16
value is and what we calculate
31:19
it to be, again, using the
31:19
methodologies and the investment
31:23
decisions that we have to make
31:23
are.
31:26  Christina Sjahli
Does it help
31:26
if a business or an entrepreneur
31:30
do a scenario analysis and show
31:30
it to a fund? Does it help you
31:37
to determine if the assumption
31:37
that they are using make sense
31:41
or not?
31:42  Lally Rementilla
That's always
31:42
a very good exercise. And I
31:45
would highly recommend, so great
31:45
that you brought that up, I
31:49
always highly recommend when
31:49
companies come, especially if
31:52
they're looking for debt
31:52
financing, because lenders are
31:57
primarily more risk-focused. So
31:57
instead of focusing on the
32:02
upside, and the hockey stick
32:02
kind of growth that may come out
32:06
within a company, lenders will
32:06
tend to really understand or try
32:10
to ascertain what the risk
32:10
inherent in this particular
32:14
company situation is and will
32:14
try to manage the downside. So
32:17
what's very reassuring for a
32:17
lender is if a company has done
32:21
a lot of this scenario planning
32:21
and to say that, "Hey, this is
32:26
our most likely business plan,
32:26
and we're going to raise this
32:30
much money, spend it in these
32:30
kinds of investments, and
32:34
generate certain revenue
32:34
growth." It's always great when
32:38
these same companies say that,
32:38
"Hey, but if some of our
32:42
assumptions on, let's say, our
32:42
acquisition costs or assumptions
32:48
on our ability to penetrate our
32:48
market don't pan out, then we
32:52
have scenario B." Which is,
32:52
"Hey, this might be very tight.
32:58
And the runway that we have may
32:58
go from being a 24-month runway
33:02
to a 12-month, or maybe even a
33:02
9-month runway."
33:07
And then, one of the other
33:07
things that we also want to look
33:11
at, again, as lenders is well,
33:11
what is the story of the
33:13
worst-case scenario? And if a
33:13
worst-case scenario actually
33:16
happens, then how are you going
33:16
to retain enough cash so that
33:22
you can have enough ability to,
33:22
let's say, pivot your business
33:26
or make certain changes to keep
33:26
the company going? So these
33:30
scenario analyses are very
33:30
useful when we look at the
33:35
financial strength and financial
33:35
agility, or in some cases, they
33:40
call it the capital efficiency
33:40
of a company.
33:43
And then if you now take in the
33:43
additional layer of IP, then the
33:49  question is
How will your IP
33:49
portfolio help drive those
33:53
different scenarios? And what
33:53
we've seen, especially in cases
33:56
where we have very IP-rich
33:56
companies, so these are
33:59
companies that have a lot of
33:59
patents, we've seen instances
34:03
wherein they now look at those
34:03
patent portfolios and say, "Hey,
34:06
in the worst case scenario,
34:06
maybe we can sell some of these
34:09
patents, or maybe we can license
34:09
out these patents. Or maybe we
34:14
totally restructure our business
34:14
so that we're not manufacturing
34:18
everything we're selling. Maybe
34:18
we're just licensing out the
34:21
technology to someone who can
34:21
manufacture and who can take on
34:24
the distribution risk in a
34:24
particular country."
34:28
What I believe is really great
34:28
about IP-rich companies is that
34:32
it gives them a lot of options.
34:32
So there's a lot more
34:35
optionality in IP-rich companies
34:35
because those patents will allow
34:40
them or even those trade secrets
34:40
will give them additional
34:44
options of what they can do with
34:44
their company on the downside
34:48
scenario, in some cases over
34:48
time can also help them find
34:52
other revenue streams, such as,
34:52
let's say, licensing out their
34:56
patents in order to create more
34:56
upside scenarios as well.
35:01  Christina Sjahli
So the key
35:01
point here that I'm hearing is
35:05
for companies to have an IP
35:05
strategy and then be proactive
35:09
in terms of looking at the
35:09
downside, not only the upside
35:14
alone. When they have a
35:14
strategy, and they're looking
35:17
forward and looking at the
35:17
downside, I think it helps for
35:21
the business, and then also for
35:21
the lender or the investor to
35:26
understand how agile is the
35:26
business, if something like
35:31
COVID-19 pandemic happen.
35:33  Lally Rementilla
Correct.
35:33
Exactly. And I can't stress that
35:36
enough. What you said at the
35:36
beginning of sort of your
35:40
question, which is having that
35:40
IP strategy, because that's very
35:44
important, I'd say, for any
35:44
company now, especially as what
35:49
we sort of how we see the world
35:49
is that this is really more of
35:52
an intangible-based economy. And
35:52
having that IP strategy can be
35:58
as simple, very simple. It
35:58
doesn't need to be a 20 sort of
36:03
volume type of document. It can
36:03
be even like a one-pager where
36:06
you're really at the sort of the
36:06
very early stage of your
36:09
company, really trying to
36:09
understand what are those trade
36:13
secrets that you have and making
36:13
sure you have a plan for
36:15
protecting them. What are the
36:15
inventions that you generated
36:20
which you should be or could be
36:20
patenting? And what is your plan
36:23
for filing trade, trademarks, or
36:23
registering copyright for any of
36:28
your artistic assets?
36:30
And there's actually in our
36:30
website, so we have a website
36:34
dedicated to our team, it's
36:34
bdc.ca/IP. So that's the English
36:40
website. And the French website
36:40
is bdc.ca/PI. And we've got
36:46
tools there to help you assess
36:46
your IP strategy. The Canadian
36:52
Intellectual Property
36:52
Organization or CIPO also has
36:56
tools on almost like a step by
36:56
step method on how to conduct an
37:00
IP strategy review. Those are
37:00
great tools that entrepreneurs
37:04
have access to, and they're all
37:04
free to really get them a head
37:07
start on actually articulating
37:07
that IP strategy, putting it
37:11
down on paper, and then making
37:11
sure that on an at least an
37:14
annual basis, they're looking at
37:14
it and making modifications to
37:18
it.
37:19  Christina Sjahli
Now, since we
37:19
are in the area, talking about
37:23
the debt financing, you know, we
37:23
already talked about valuation.
37:26
And is there any other factors,
37:26
aside from valuation that can
37:31
influence the financing term for
37:31
debt financing?
37:36  Lally Rementilla
Yes, so very
37:36
important question because
37:39
everyone like there, a lot of
37:39
people have thought, but all we
37:41
do is value patents. And that is
37:41
the only basis for the
37:45
investment decision that we
37:45
make. And that's totally not
37:49
true. It's also important for us
37:49
to also look at the fundamentals
37:54
of a company. So there's this
37:54
term that we use, and it's we
37:58
call it, product-market moat
37:58
fit. So by that, we're looking
38:03
for a company that has developed
38:03
and brought to market a product
38:08
that's strong, that's unique,
38:08
that's differentiated, that's
38:12
addressing the needs, and is
38:12
being accepted and widely
38:15
accepted by a very global and
38:15
growing market. And where they
38:20
have created a moat and made
38:20
them very strong, defensible,
38:24
and differentiated, whether that
38:24
moat comes through IP
38:28
protection, or it can come in a
38:28
very unique business model or
38:32
revenue model. And then, also
38:32
the capabilities of a very
38:35
strong, agile, and ambitious,
38:35
and capable management team and
38:41
having good governance in place.
38:41
So that in a sense, is
38:45
product-market moat fit.
38:46
And also, underlying that is
38:46
making sure that the company has
38:50
a very strong value proposition
38:50
to their customers: that the
38:54
customers really see the
38:54
compelling reason why they
38:58
should be buying from this
38:58
company, whether it be a
39:01
product, a service, or why they
39:01
should be licensing the
39:06
technology of the company at
39:06
hand. So that's definitely the
39:11
core of what we look for when
39:11
we're working with companies.
39:14
And so, the company has to be
39:14
able to demonstrate that as part
39:18
of our, I guess the discussions
39:18
we have, whether it be as we're
39:21
qualifying the opportunity or
39:21
conducting due diligence, those
39:26
are very important for us to
39:26
look at.
39:28
And then, as we go further into
39:28
actually structuring the loan,
39:34
then one of the things we look
39:34
at is: "Okay, how can we now
39:36
provide a financial proposal
39:36
that can really help solve this
39:41
company's needs?" And so as we
39:41
look at all those different
39:45
information that we get from a
39:45
company, we have a lot of
39:47
discussions. Now, our process is
39:47
very in-depth. Like, we really
39:50
go deep into understanding their
39:50
IP strategy upfront: how their
39:55
technology, and their IP, and
39:55
their revenue streams all link
39:59
together. Then we come up with a
39:59
process. So is this is a company
40:04
where we see debt risk or equity
40:04
risk? So if it's that's that
40:08
risk, where we see a lot more
40:08
predictability, it's a company
40:12
that we know is going to be able
40:12
to become profitable within a
40:16
particular period of time, then
40:16
we start looking at: "Okay,
40:19
let's let's come together and
40:19
try to get a debt investment or
40:23
debt structure."
40:24
And then we look at the
40:24
different components of a debt
40:27
structure. So obviously, the
40:27
amount that we're going to make
40:30
investment in, how much of cash
40:30
interest, they're going to be
40:35
paying us, how much of that
40:35
interest may be what we call PIK
40:39
or payment-in-kind. So it's
40:39
almost like a different interest
40:42
structure where they don't need
40:42
to pay it till the end of the
40:45
loan, or there might be some
40:45
royalties that we would, we
40:49
would sort of structure. And so,
40:49
it's a risk share type of model,
40:52
right? So they, if they make
40:52
their revenue projections, then
40:55
we all win.
40:56
In some cases, we know that this
40:56
company is probably going to be
41:00
burning a lot more cash and
41:00
needs a lot more investment. And
41:04
therefore, we are seeing this
41:04
more as more of an equity risk
41:07
type of scenario. So that's
41:07
where we might be proposing more
41:11
of a convertible note or
41:11
convertible debt option, or
41:15
actually looking to see if we
41:15
can participate as a minority
41:20
shareholder in the company. So
41:20
we've got that flexibility,
41:23
which is again, I think, also
41:23
very unique in the market: of
41:25
being able to make both debt and
41:25
equity investments. And the
41:29
approach that we take is that we
41:29
really try to understand what
41:32
the company wants to do, what
41:32
their projections look like, how
41:36
their IP portfolio really adds
41:36
value to them as a company, and
41:41
then try to structure something
41:41
that works.
41:44  Christina Sjahli
I dealt with
41:44
payment-in-kind before and
41:46
royalties. And in this type of
41:46
financing, well, actually, in
41:52
any type of financing, in my
41:52
opinion, there is a recording
41:56
that a business needs to provide
41:56
to the lender. Now, I'm curious
42:01
from your perspective, from BDC
42:01
Capital, when you deploy funds
42:06
to a venture, do you require
42:06
some kind of reporting
42:11
requirements after you deploy
42:11
the fund?
42:14  Lally Rementilla
Yes, yes. So
42:14
there are, I would say there's
42:18
at least an annual reporting
42:18
requirement. Depending on the
42:22
stage of the company and the
42:22
size of the loan, it might be a
42:26
review engagement, or it might
42:26
be an audited financial
42:29
statement engagement that we
42:29
require. And then, on top of the
42:33
annual reporting requirements,
42:33
there are more periodic
42:37
requirements that we might
42:37
require. It can be either
42:40
monthly or quarterly. Because
42:40
what's also very important for
42:44
us is to monitor the financial
42:44
performance of the company. I
42:48
mean, it's very similar to other
42:48
financial institutions that
42:51
obviously have those reporting
42:51
requirements.
42:54
And then on top of that, what
42:54
makes us unique is again,
42:57
because we look at the IP
42:57
portfolio, we also have
43:02
reporting on what they've done
43:02
to grow, maintain, and develop
43:08
their IP portfolio even more.
43:08
The company can also look at us
43:12
as almost like what they call a
43:12
shadow IP strategy team,
43:15
meaning, because the world of IP
43:15
is can be very competitive, it
43:20
can be litigious. So what we
43:20
would do is really just monitor
43:23
the space to see if there's a
43:23
lot of patenting activity that's
43:26
happening or a lot of litigation
43:26
that's happening, because I
43:29
think it's very important for
43:29
companies that are IP-rich, to
43:33
make sure they have a handle on
43:33
that as well.
43:35  Christina Sjahli
Talking about
43:35
risk, the value of IP increases,
43:40
typically over time, but
43:40
sometimes there is also a risk
43:42
of impairment, which is the
43:42
value of the IP decreases. How
43:47
do you take that into account
43:47
when you are structuring or
43:51
underwriting a financing
43:51
agreement?
43:54  Lally Rementilla
So very good
43:54
question. And if we go, let's
43:57
say back to what we do really
43:57
well, which are patents. As
44:00
everyone knows, patents have a
44:00
finite life. So there's a
44:04
20-year period, in which you
44:04
have that patent protection. And
44:10
after that, you lose it, unless
44:10
obviously, you file for
44:14
continuations, and also other
44:14
improvements that can help
44:17
protect or keep that protection
44:17
in your company on a more
44:20
ongoing basis. But one of the
44:20
key things when we look at
44:24
valuing a patent portfolio is
44:24
how young or old are these
44:28
patents. And it doesn't mean
44:28
that the younger it is, the more
44:32
valuable it is. So I would say
44:32
it's a bit more like a bell
44:35
curve. So for some patents that
44:35
are really new, it's actually,
44:40
in some cases, much harder to
44:40
value, especially if their
44:43
technology is truly unique.
44:43
Because we don't know what other
44:47
technologies are out there. And
44:47
if there are no other sort of
44:50
similar technologies or patents
44:50
are out there, then it's really
44:53
difficult to understand what
44:53
even the commercial market for
44:56
this patent is.
44:58
And then on the flip side, if If
44:58
you're looking at the very end
45:01
of the life, then obviously as
45:01
that expiry date comes very
45:07
fast, or as you get closer to
45:07
that expiry date, then you know,
45:10
you're going to lose some
45:10
protection, and therefore the
45:12
value of those patents could
45:12
sort of come down very quickly.
45:16
What we do tend to do is like,
45:16
look at what does that bell
45:19
curve look like? Where does this
45:19
company sit when it comes to the
45:22
bell curve? What other
45:22
transactions are happening? So
45:26
to the extent that we know,
45:26
there's actual active patenting
45:30
that's happening in the space,
45:30
and knowing who those entities
45:34
are, that's pursuing very
45:34
similar patterns, it gives us a
45:38
sense of where the market
45:38
activity is and where there may
45:42
be additional avenues in which
45:42
the value of that path and
45:46
portfolio would grow.
45:48  Christina Sjahli
It's very
45:48
interesting to me, because the
45:53
value can fluctuate, and to get
45:53
financing based on that
45:57
intellectual property. And I
45:57
guess it's similar to mining
46:00
property, in a way, because the
46:00
gold price is like fluctuating.
46:04
And then, suddenly, if the gold
46:04
price drop, well, that's have an
46:09
impact somehow to the financing,
46:09
the ability to pay the debt, or
46:14
the value of that property. And
46:14
then the lender needs to know
46:18
how is that going to impact the
46:18
whole structure or the prospect
46:22
of the company. So in terms of
46:22
looking at it from the debt
46:26
financing, there is interest
46:26
cost. There is probably the
46:29
payment-in-kind that you
46:29
mentioned. There is also
46:32
possibly royalties. Is there any
46:32
other financing costs that
46:36
business owner should consider
46:36
when they are thinking about
46:41
IP-backed financing?
46:42  Lally Rementilla
So obviously,
46:42
there's the costs of the actual
46:45
financing transactions. And most
46:45
lenders usually have some form
46:49
of an underwriting fee, or some
46:49
form of a processing or study
46:54
fee. So they should always sort
46:54
of budget for that. IP-backed
46:57
financing deals also carry a lot
46:57
more legal costs because of the
47:03
fact that, in most cases,
47:03
they're just going to be some
47:05
security registrations made. So
47:05
the sort of the simple ways that
47:10
there might be a general
47:10
security agreement. And
47:13
therefore, if the company does
47:13
not have an existing lender,
47:16
then they just need to know that
47:16
there's additional legal work
47:20
that's going to be required to
47:20
put in a GSA. If they already
47:24
have another lender, so let's
47:24
say they already have a line of
47:26
credit with one of the
47:26
commercial banks, then the sort
47:30
of IP-backed lender will now
47:30
also want to have some form of
47:33
an intercreditor agreement
47:33
between the bank and them. And
47:38
so, now we're looking at
47:38
possibly additional legal costs.
47:42
And then, if a company has more
47:42
than one legal entity, so let's
47:46
say it's a Canadian corporation,
47:46
but has a US subsidiary, and
47:52
let's say the company's patents
47:52
are actually owned by the US
47:56
subsidiary, then now you're
47:56
looking at additional security
47:59
registrations and corporate
47:59
guarantees between the different
48:03
entities. So legal costs are
48:03
also going to factor in. And so
48:08
if we're looking at IP-backed
48:08
financing transactions, and this
48:12
is, I'd say, just in general,
48:12
because of the amount of legal
48:16
work involved and due diligence
48:16
costs involved, they do tend to
48:20
be more skewed towards the
48:20
larger transactions. So millions
48:24
of dollars as opposed to let's
48:24
say, $100,000 loans or
48:29
investments. And the reason for
48:29
that is that once you add up the
48:32
cost of all these different
48:32
fees, then they make it more
48:37
compelling when you actually
48:37
have a larger transaction as
48:41
opposed to a smaller
48:41
transaction.
48:42  Christina Sjahli
Now, what is
48:42
the typical time? I'm pretty
48:45
sure this is probably depends on
48:45
the complexity of the business,
48:49
but just curious from the
48:49
application until the fund is
48:53
deployed, like how long normally
48:53
does it take? Does it take less
48:57
than a year, less than six
48:57
months?
48:59  Lally Rementilla
Right? So it
48:59
really depends on a lot of
49:02
different factors. What we find
49:02
is obviously the readiness of a
49:05
company to enter into an
49:05
IP-backed financing process. So
49:12
first and foremost, the company
49:12
has to be well-organized. And I
49:15
would always tell the company,
49:15
first of all, make sure that you
49:19
pass let's say the lender's
49:19
eligibility criteria, because it
49:24
makes it just easier to to know
49:24
that they're well prepared. They
49:29
have the right sort of IP
49:29
portfolio that's protected. They
49:33
have commercial revenue streams.
49:36
So our eligibility criteria
49:36
involves three things: So one is
49:39
we want companies that already
49:39
have an emerging or established
49:42
IP portfolio with a registered
49:42
IP assets and granted patents.
49:48
So currently, we're looking for
49:48
mainly companies that are
49:50
granted patents right now. It
49:50
doesn't mean that that's all
49:53
we're going to value for the
49:53
life of the fund. But most
49:56
currently, that's the one that
49:56
takes us much quicker to value.
50:00
The second thing is, again,
50:00
having that commercial revenue
50:02
stream of at least a million
50:02
dollars. It's very important
50:05
when you're doing a valuation to
50:05
be able to attach that revenue
50:08
stream.
50:09
And therefore, if a company's
50:09
pre-revenue, we were happy to
50:13
chat with them eventually. But
50:13
it's they need to know that we
50:16
are looking for companies that
50:16
have been able to demonstrate
50:19
that track record of generating
50:19
revenue. And then the third
50:23
criteria is a global ambition
50:23
and plan to scale. So we're
50:28
really set up to help create the
50:28
next generation of global
50:31
champions in Canada. And
50:31
therefore, we need to be able to
50:34
see that there's global
50:34
application for a company's
50:38
innovation, and that they have
50:38
the capabilities to really scale
50:42
this in a global way.
50:45
And then as we go through the
50:45
actual process, whether it be
50:50
qualifying the opportunities,
50:50
due diligence, it's very
50:53
important for the company to
50:53
have their financial statements
50:57
in place, have a working
50:57
financial model, that's able to
51:01
show their projections for their
51:01
income statements, balance
51:05
sheet, and cash flow. It's like
51:05
a full sort of financial model,
51:08
as opposed to just assumptions
51:08
that are hard coded into an
51:12
Excel spreadsheet that,
51:12
unfortunately, that doesn't work
51:15
for us. Because again, we're our
51:15
intent is to really cut larger
51:19
checks. So we're looking to
51:19
invest somewhere between three
51:21
to ten million dollars per
51:21
company. So there is a degree of
51:25
financial readiness and
51:25
financial sophistication that we
51:29
do tend to look for.
51:31
And then on the IP, having a
51:31
real good list of all your IP
51:36
assets and making it always
51:36
complete and available. Because
51:41
we will ask, we will ask a lot
51:41
of questions with respect to the
51:44
IP portfolio. We will have, we
51:44
have questionnaires that the
51:48
companies have to fill out
51:48
upfront. So this process is, I
51:52
would say, very akin to more of
51:52
a venture capital process. It
51:57
can take months to conduct. We
51:57
go and talk to the company's
52:01
board of directors. We'll talk
52:01
to the company's customers, some
52:06
of their key suppliers, their
52:06
management team. So it does take
52:11
longer. It's definitely not like
52:11
a one-month process. I can
52:15
assure you that. I would say at
52:15
best that probably a three-month
52:20
process, and it can take longer.
52:22  Christina Sjahli
You mentioned
52:22
financial statements. I'm
52:23
assuming you're looking for a
52:23
accrual basis instead of cash
52:26
basis, right?
52:28  Lally Rementilla
Yes, we would
52:28
prefer accrual-based financial
52:30
statements. And if a company,
52:30
especially, I'd say companies
52:34
that are subscription-based,
52:34
where they sort of get annual
52:39
contract billings paid for
52:39
upfront, if a company can, I
52:44
guess, show us both a cash-based
52:44
and accrual-based, that's good.
52:48
But definitely at least the
52:48
accrual-based because then, we
52:51
can sort of reconcile and really
52:51
understand what their cash flow
52:56
needs are and what obviously
52:56
their income statement provides.
52:59
Because then, that's where the
52:59
cashflow piece or the financial
53:02
model helps. Because if the
53:02
income statement is
53:05
accrual-based, then really the
53:05
cash impact on what we're doing
53:09
and what they're trying to do
53:09
will not show up there. It's
53:11
really going to show up in their
53:11
cash flow analysis or cash flow
53:15
statement.
53:15  Christina Sjahli
Lally, this
53:15
has been enlightening. I learned
53:18
so much from you. And is there
53:18
anything else that you have not
53:23
shared with my audience that you
53:23
want to add to this
53:25
conversation?
53:26  Lally Rementilla
Sure. Well, I
53:26
mean, first of all, thank you
53:29
very much, Christina. This has
53:29
been really great. If there's
53:32
one thing I have to say is that
53:32
I'm really just so happy that
53:37
BDC Capital trusted my team in
53:37
bringing to the market this very
53:43
unique, one-of-a-kind
53:43
opportunity to help Canadian
53:47
companies across the country.
53:47
And I believe that we're really
53:52
a trailblazer in this space, and
53:52
we're bringing together to the
53:57
market, not just capital, but
53:57
really bringing together an
54:01
ecosystem. And we're working
54:01
with other like-minded agencies
54:06
and funders, I call it the IP
54:06
village, to really support
54:12
companies as they grow. So
54:12
anyone who's listening to this
54:16
podcast is very much welcome to
54:16
drop me a line or drop a line
54:21
with my team. Again, we're at
54:21
bdc.ca/IP or /PI if you speak
54:28
French. We're always trying to
54:28
learn more about the needs of
54:35
IP-rich companies across the
54:35
country. And IP-backed financing
54:40
is new. And so, there's still a
54:40
lot to learn as to how we can
54:44
really promote these companies
54:44
and support them going forward.
54:47
So we'd love to hear from
54:47
everyone.
54:49  Christina Sjahli
Lally, thank
54:49
you so much for being here.
54:52
And that brings us to the end of
54:52
another show. Thank you so much
54:56
for listening to another episode
54:56
of Her CEO Journey, the business
55:01
finance podcast for women
55:01
entrepreneurs. If you want to
55:04
create a proactive financial
55:04
plan and process for your
55:08
business so you are ready to
55:08
weather the financial storm over
55:12
the next few months, let's chat
55:12
and see what's possible for you.
55:17
Book in a time to speak with me
55:17
at
55:19
christinasjahli.com/lets-chat.