Growing Your Business with IP-Backed Financing - The Journey of Lally Rementilla
In every business, it’s important to scale and aim for growth. Having your eyes set on your vision serves as motivation for your company. And to reach your company’s full potential, you’ll need financing. So, it’s important to know how to leverage assets, such as your IP portfolio. Yet, some founders and CEOs might still have misconceptions about IP portfolios and intellectual property protection.
In today’s episode, Lally Rementilla joins us for an enlightening conversation on how you can use your IP portfolio for business growth. She dives deep into the different types of IP-backed financing and how they can help the future of your business. She also shares how her company provides financial support to other businesses so that they can grow and scale. Lastly, we will also be exploring the processes of valuation and creation of IP portfolios.
Are you a growth-stage business that wants to know how your IP portfolio can help you? Tune in to this episode to learn more!
Here are three reasons why you should listen to the full episode:
Find out about the different types of IP-backed financing for intellectual property protection.
Learn about the valuation process and how to create an IP portfolio.
Determine the key factors in acquiring financing deals, protecting your intellectual properties and assets, and earning patents.
Resources:
Visit Christina Sjahli’s website! Learn more about innovating and scaling your business through the Her CEO Journey™ podcast.
Unlocking Financial Opportunities with IP: How to Patent an Idea - The Journey of Susan Blanchet
Chat with Christina and set up a time here!
Download the Forecasting Guide so you can create a better and improved financial forecast for your business!
Connect with Lally: LinkedIn
Episode Highlights
[05:51] Lally’s Journey
Lally has worked as a senior finance head for different companies in the technology, media, and telecom sector.
In those two decades, she noticed the difficulties in raising debt financing for IP-rich companies.
She set up a “Big Hairy Audacious Goal” to raise a $100-million fund to address it.
Lally then met the team that founded Quantius and became their CFO in 2015. She eventually became this company’s CEO.
[09:15] Joining Quantius and BDC Capital
After getting their three-year track record, Quantius began looking for institutional capital.
Around March 2020, they decided to join Quantius’ knowledge and experience with BDC’s capital and reach.
On July 16, 2020, they launched their $160-million fund to help IP-rich companies.
[12:30] Deploying Funds
Lally’s team announced their first deal in February 2021 with Norvarc Technologies. They provided growth capital worth $2.6-million through IP-backed financing to this company.
This Vancouver-based company invented the world's first collaborative robot or cobot for welders.
It’s difficult to find skilled welders. And so, a cobot helps with performance and productivity while promoting a safer work environment.
[14:37] Attracting Foreign Companies
Through this fund, Lally wants to create an environment that attracts IP-rich companies to Canada. With this, there will be more economic opportunities in the country.
Case studies show that many Canadian companies that have moved to the U.S. are seeking to return to Canada.
[15:38] Defining Intellectual Property
Intellectual property is a creation, idea, or invention of the mind.
Intellectual property protection and rights are state-driven monopolies issued by a government. This is to prevent others from manufacturing or selling products under IP.
BDC Capital assesses, analyzes, and values patents to develop an investment thesis or a conviction. This helps them determine whether they should invest in a company.
“So we take those patents and really assess them, analyze them, and value them to really help us develop an investment thesis or conviction around making an investment into a company.”
Companies also often possess intangible assets, such as know-how, client lists, data, and software.
[17:14] Debunking Misconceptions on Intellectual Property Protection
IP isn’t just about patents.
You should also look at trademarks, trade secrets, and copyright. Through this, you understand how to build a portfolio that protects your business.
“Trade secrets are almost sometimes as important and can even be more important than some of the more explicit forms of IP.”
IP and intellectual property protection are not just for technology companies.
Trade secrets should be protected because they lose their value when shared beyond the circle of who needs to know about them.
[19:31] BDC on Expanding Their IP-Backed Financing
BDC’s fund is not yet set up for doing other types of IP-backed financing.
Instead, their expertise lies with patents.
They are exploring other forms of IP. These include intangible assets such as data, proprietary software, and music royalties.
[21:05] Providing IP-Backed Financing
IP-backed financing is a new phenomenon, and therefore, still evolving.
It’s a form of financing in which value is attributed to the intangible assets of a company. Through this, investment decisions are made.
BDC Capital analyzes the valuation of a company's patent portfolio. They draw insights about the company and determine their portfolio’s possible collateral.
There may be different ways of providing IP-backed financing in other countries or areas.
“It's going to be very important for a company to understand which kind of IP-backed financing model they want to use for what they're trying to achieve.”
Listen to the full episode to learn the different types of IP-backed financing models and how they work.
[24:55] The Three Methods of Valuing Assets
First is the cost-based method. This method seeks to understand the costs necessary to create a patented technology.
Next, the income-based method is focused on the future cash flow of a particular asset.
Finally, the market method tries to understand the transaction price of similar patents sold either in the public or private markets.
Valuations may differ based on the intended use of the valuation.
BDC Capital goes beyond valuation. They seek to understand how a patent portfolio can make a company unique, how it protects them, and how it increases revenue stream.
[29:22] Preparing for IP-Backed Financing
BDC’s valuation of a company is not shared with the company in question.
An evaluation is done to make an investment decision and determine the liquidation value of the patent portfolio.
Providing valuation to a company can be a sensitive conversation. There may be a disparity between what the entrepreneur believes their value is and what lenders calculate it to be.
[31:42] Doing a Scenario Analysis
Lenders are risk-focused. It can therefore be reassuring for lenders if companies have done scenario analyses.
Consider the worst-case scenario and how you can respond to it.
Scenario analyses help determine a company’s financial strength or capital efficiency.
IP-rich companies have more options to manage the downside. They can also find alternative revenue streams.
[35:33] Creating an IP Portfolio and Strategy
Having an IP strategy doesn’t need to be complicated.
First, know your trade secrets and how to protect them.
Then, determine your inventions and which ones can be patented.
Lastly, create a plan for filing trade, trademarks, or registering copyright for intellectual property protection. Make sure to track it regularly and make modifications when necessary.
BDC Capital offers tools to assess IP strategies. The Canadian Intellectual Property Organization also has a guide on conducting an IP strategy review.
[37:36] Other Factors That Influence Debt Financing
Valuation is not the sole business for making investment decisions.
BDC also looks at the fundamentals of the company. They call this the product-market moat fit.
A company’s strong value proposition to its customers also influences financing.
In structuring a loan, they determine how they can provide a financial proposal that can solve the company’s needs.
Learn how BDC evaluates a company and its process for creating a financial proposal by tuning in to the full episode!
[41:14] On Reporting Requirements
BDC requires an annual report depending on the stage of the company and the size of the loan.
They might also require monthly or quarterly reports to monitor the company’s financial performance.
Meanwhile, BDC monitors the IP space for patenting and litigation activities.
“We really try to understand what the company wants to do, what their projections look like, how their IP portfolio really adds value to them as a company, and then try to structure something that works.”
[43:35] Structuring a Financing Agreement
Patents have a 20-year time limit.
One of the key things to consider when looking at an IP portfolio is how young or old the patent is.
As you get closer to the expiry date, the value of patents decreases. But the age of a patent portfolio does not necessarily determine its value.
Thus, they look at the bell curve, where the company sits on that curve, and the transactions that are happening around it.
[46:42] Other Financing Costs to Consider
The actual financing transaction and lender’s underwriting fees are some costs to consider in IP-backed financing.
Deals also carry legal costs due to security registrations.
Adding up the costs of these different fees, larger transactions are more compelling.
[48:59] How Long Does IP-Backed Financing Take?
The main factor is a company’s readiness to enter an IP-backed financing process.
BDC’s eligibility criteria consist of an IP portfolio with IP assets and patents, a commercial revenue stream of a million dollars, and a global plan to scale.
A company should also have a working financial model and a complete list of IP assets.
IP-backed financing can take months to conduct, possibly three months and more.
Accrual-based financial statements are preferred. However, cash-based financial statements can also be presented along with them.
[53:26] Blazing the Trail for IP-Backed Financing
Lally is happy that BDC brings a unique opportunity to help Canadian companies grow.
BDC is a trailblazer in this space. They bring together an ecosystem for IP-backed financing.
“IP-backed financing is new. So there's still a lot to learn as to how we can really promote these companies and support them going forward.”
They are currently working with other like-minded agencies and founders to support the growth of companies.
About Lally
Lally Rementilla is a managing partner at BDC Capital. She oversees and provides strategic guidance to a national team that helps companies accelerate their growth. She is also an Associate Fellow at Creative Destruction Lab and a member of Grand Challenges Canada’s investment committee.
After working as a financial executive in the technology sector for two decades, Lally moved into investment and became the CFO and then CEO of the commercial lender, Quantius. There, she structured and launched the company’s main fund and helped build a diverse portfolio of knowledge-based companies. She now works as the managing partner for BDC’s IP-Backed Financing practice.
Lally is a proud supporter of Canadian innovation and committed to partnering with founders and management teams to help them scale. To know more about Lally, you can connect with her through LinkedIn.
Powerful Quotes
“If we really wanted to help a lot more companies, and we needed to have a larger balance sheet or a larger capital pool behind us.”
“IP or intellectual property is not just about patents. It's about other forms of intellectual property that you should also be looking into, such as trademarks, and trade secrets, and copyright, to really understand how you can build a portfolio that protects your business.”
“There does tend to be that big disparity of what the entrepreneur believes their value is and what we calculate it to be.”
“Patents have a finite life. So there’s a 20-year period in which you have that patent protection.”
“Once you add up the cost of all these different fees, then they make it more compelling when you actually have a larger transaction as opposed to a smaller transaction.”
Enjoy this Podcast?
The entire process of IP-backed financing can be painstaking and complex. Lally goes in-depth into the factors that you’ll need to consider and the inner workings of IP-backed financing so it’s easier for you to prepare and ask the right questions for your IP portfolio and intellectual property protection. If you enjoyed today's episode of Her CEO Journey Podcast, then hit subscribe and share it!
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To fuelling the life you want to live,
Christina
Transcript
Lally Rementilla: What could be the possible collateral value of their IP portfolio? Or in the case of, let's say, in equity financing, how does their IP actually drive the valuation of the company? In different other countries and in different sort of areas, there may be other ways in which other capital providers provide IP-backed financing. Ours is what I call more of a growth oriented view. We're providing working capital to help grow a company.
Christina Sjahli: Let's say you are a founder of a growth stage company with a few intellectual properties and you have been thinking, "What is the value of all of this intellectual property or IP? Is there any commercial lender that would be willing to finance your business based on your IP portfolio?" If you have been thinking about this, then this particular episode is for you.
Lally Rementilla: Oh, it's my pleasure to be here today. Thank you very much for inviting me.
Christina Sjahli: Today's episode is the fourth episode of The Intellectual Property Podcast Series. Over the last few weeks, starting with Episode 128, we share with you the different types of intellectual properties, the step you need in creating IP strategy, how to protect this asset, and a journey of a female founder who is in the trenches in building her IP strategy to get financing. Now, it's time for us to share with you how to exactly leverage those IP strategy and cash in your ideas to grow your business to the next level. Today's guest is Lally Rementilla. She is the managing partner at BDC Capital located in Toronto, Canada. Lally is an expert in IP-backed financing, and she believes IP-rich companies have a unique portfolio, global customer base, and strength to survive an economic downturn. Together with her team, they've put in the time to go very deep into understanding and appreciating businesses' IP and intangible asset. They provide the right IP-backed financing for growth stage businesses.
In this episode, Lally shares, among others, the possible type of IP-backed financing out there, the process to value an IP portfolio, the type of IP-backed financing that BDC Capital provides to growth stage companies within Canada and outside Canada, and the benefit of scenario analysis in any financing deals. If you are not located in Canada, don't jump to the conclusion that this episode is not relevant to you because this type of lending structure is not specific to Canada. You may find an alternative commercial lender within your region, so take the time to listen until the end because this episode will provide you useful tips. When you approach an alternative commercial lenders, you will be able to ask the right questions.
You're listening to Her CEO Journey, the business finance podcast for mission driven women entrepreneurs. I'm your host, Christina Sjahli. If you are new here, a big warm welcome. If we are not connected on LinkedIn, please reach out and say hi because that's where I hang out and share my business finance tips. If you have been listening to this podcast for a while, and you are a regular listener, I want you to know I appreciate you. My podcast won't be around without your support. This is a free weekly show where my guests and I want to inspire you to balance between mission and profit, to create an impact in this world, and to achieve financial equality through your business for good.
Scenario analysis is one of those tools that every founder should have within their business, especially if you are looking for debt financing. We've talked about it inside this episode. It is one of those financial tools where you can assess financial strength and agility. However, before you can get to scenario analysis, you need to build the foundation. The foundation is about forward-looking view of your financial result, what we call financial forecasting.
If you are at a stage where you realize you need to build a robust financial forecast but don't know where to start, we have a solution to your problem. Download the Forecasting Guide we have created for you and start creating a better and improved financial forecast. You can find the link to this guide in the show notes. Let's say after using the guide you think, "Hmm, this guide helps but I think it is better if I focus my time on doing what I really love which is building and growing my business. I know business finance is important, but I don't love it." That's when we are here to partner with you. We understand building a proper and robust financial forecast takes time, accountability, curiosity, and passion for your business. Connect with us at christinasjahli.com/lets-chat.
Now, let's find out Lally's CEO journey. Lally Rementilla, welcome to Her CEO Journey. It's a pleasure to have you here today. Before we dive into what is intellectual property-backed financing, let's start with your journey first that leads you to becoming an expert in IP-backed financing. And then now you are a managing partner with BDC.
Lally Rementilla: Surely, well, this is definitely something that I would consider a very non-traditional path. I started my career on really what they call the operating side of the business. I'm a two-decade veteran of the technology, media, and telecom sector, primarily working as a senior finance head or CFO of startups, scale-ups and multinational companies in that space. In those two decades, I saw a lot of inefficiency in the market.
And I witnessed firsthand the difficulty of how it is to raise debt financing, especially when you're dealing with very IP-rich companies. Very, I'd say commonly, I would go to my banker and my banker, I asked for a loan, and my banker would say, "Well, Lally, you've got all these losses. Lally, you don't have any hard assets. You don't have a lot of inventory. You don't have a building. You don't have any land. You have very little in the form of accounts receivables. And so it's very difficult for us to extend some form of finance to you."
With this reality in mind. I thought that, how can it be that companies that are going really fast, they're exporting, they're rich in intellectual property, how, how can it be that it's very difficult for them to get financing? And so around, I'd say 2013. Around that time, I told myself, I'm going to find a way of really addressing this issue. And if there's one thing I can do, and so I sort of set up what they call a Big Hairy Audacious Goal for myself, or a BHAG, it's that by the time I turn 50 years old, I want to be able to raise $100 million fund to address this. And so I went on, I was still working in a technology company at that time.
But in 2015, I had met this team that had founded a firm called Quantius. And I went actually to meet with them to try to get a loan and coming out of the meeting, they wanted to hire me as their CFO. And what Quantius did was to essentially address this issue that I had faced in my career as an operator. And so what they've developed was this unique ability to value intellectual property, especially in the form of patents, and be able to lend against it. So I made the decision that this is going to be my opportunity to really make a difference. This is something I've always wanted to do; it's going to accelerate my ability to reach my BHAG.
And therefore, at the end of 2015, I joined Quantius as the CFO, and we launched a fund and started going out into the market in 2016. And then through the course of Quantius's this journey, I actually became the CEO of the company. So from 2016 to 2019, we were very much focused on building our track record, developing our own portfolio of very high-growth, knowledge-based industry companies and backing them and making term loans of somewhere between one to five million dollars each.
So once we got that three-year track record in 2019, we were pretty much ready to start looking for institutional capital. Because it's very common in the asset management or venture capital industry that you start off with your first fund. And then try as much I mean, we were entrepreneurs ourselves, and therefore, we put our own money in and we put our friends and families money in and then started developing an investor base of high-net-worth individuals and a couple of family offices. But it is clear that if we really wanted to help a lot more companies, then we needed to have a larger balance sheet or a larger capital pool behind us. So once we got our three-year track record In 2019, I started having discussions with a lot more on what you call institutional investors. And one of those investors that I was speaking with was the BDC.
As it happens, in January, last year in January 2020, the BDC, through BDC Capital, actually wanted to launch their own IP-backed financing fund. And they saw the synergies between what we were doing at Quantius and how our team was a very high performing team. We were already out in the market. We've already shown a very successful, more than three-year track record in doing IP-backed financing. And then they had the capital to really make this happen. And so by marrying sort of those two strengths, we decided just when the pandemic was declared, I kid you not, on around March 2020, that we decided we're just going to join our forces, my team at Quantius was going to join the BDC.
And that happened in May, during a pandemic, and make this happen, because it makes such a big difference for Canadian companies. And it was just something that we knew in that sort of original Quantius group that we needed to really build the capital base. And now with the reach that the BDC has, and having clients, I think we have about more than 64,000 clients and more than 2400 employees all across the country, that it is going to be a way to make an impact in the the knowledge-based ecosystem in Canada. So we joined I remember this May 4, so May the fourth be with you?
Christina Sjahli: Yeah. I know.
Lally Rementilla: It was our first day at the BDC, there was five of us. And we each all got Purolator packages with laptops and phones coming into our in our homes. For the first three months, we were just trying to learn the bank systems, working with our internal supporting teams, such as our marketing department to get all the necessary materials in place to launch the fund. And so we did launch the fund in July. I remember this July 16th 2020, that was a Thursday, we made it clear to the I guess, to the country that we have $160 million fund that's dedicated to help IP-rich companies across the country.
Christina Sjahli: So how much out of the 160 million fund that you have deployed by now?
Lally Rementilla: We don't announce the amounts. But what we have done is we've announced our first deal, and that was announced just last February. It's to a Vancouver-based company called Novarc Technologies in the advanced manufacturing sector or industry. And what they've done is that they've invented the world's first collaborative robot for welders.
Christina Sjahli: Wow.
Lally Rementilla: So yes, for welders and one of the things to know is that there's actually a global talent shortage for welding. And it's very difficult to find skilled welders, and therefore, this is one way by which the very sort of limited pool of welders that are available there to us can enhance their performance and their productivity, and also have a safer work environment by essentially having what they call a cobot or collaborative robot help them perform their tasks. We funded Novarc with a $2.6 million credit facility. And that's something that we believe can really help get to profitability and execute on a strategy that they have on working with a global distributor in the welding space.
One of my BHAGs for this fund, is how can we also create an environment in which IP-rich companies are actually attracted to Canada because of the financing that they provide, as well as all the other great ecosystem partners that we have. So one of my BHAGs here is that, hey, if I can even attract foreign companies into Canada, and be part of our portfolio, that would make me very happy as well, because it's also shown how Canada has elevated itself into an ecosystem that is very open to and supportive of IP-rich companies.
Christina Sjahli: As you are talking that you want to attract foreign companies, technology companies coming here, do you mean that you want to invest in them to grow, to expand their market to Canada?
Lally Rementilla: Yes. So what I want to be able to do is actually tell them, "Hey, why don't you come to Canada, start an office here, create Canadian IP, hire very talented Canadians, and really be or make Canada your beachhead for whatever IP-rich, intellectual property-backed sort of operations that you have?" One or the other case studies that I've seen, and I'm actively speaking with a lot of different other companies, are Canadian companies that have actually or Canadian pallant that have moved to the US, and are now actually looking to come back to Canada, and to bring their company, and to bring their IP with them. So that would be another great case study. And again, it's sort of in BHAG territory for me.
Christina Sjahli: Maybe people don't realize that they have intellectual property. So what is considered intellectual property? And what are the common misconception that lead a business not realizing they actually have intellectual property?
Lally Rementilla: I'd say the most common and most simple definition for what intellectual property is, is essentially a creation of the mind: something that comes out of ideas, and inventions of the mind. Now within intellectual property are sort of what what we always talk about when people talk about IP is intellectual property rights. So these are what they call state driven monopolies, or given monopoly. So what that means is that a particular government will give you one of these intellectual property rights, which prevent other people or companies from using it, to manufacturing it, or selling it. So an example of this would be a patent, a trademark, a trade secret, a copyright, or industrial design.
So it is the sort of intellectual property rights, and more specifically patents, that really drive what we do at the BDC IP-backed financing fund. So we take those patents and really assess them, analyze them, and value them to really help us develop an investment thesis or conviction around making an investment into a company. And then on top of intellectual property rights, there are also other form of what we call intangible assets that a lot of companies tend to have. So that could be in the form of software, know-how, brand, client lists, data, and exclusive licenses.
When it comes to misconceptions. One of the things that a lot of companies tend to don't understand is the fact that again, IP or intellectual property is not just about patents. It's about other forms of intellectual property that you should also be looking into, such as trademarks, and trade secrets, and copyright to really understand how you can build a portfolio that protects your business. It doesn't have to be too deep into technology. I mean, you don't have to be a technology company to file for an IP right. It can be the form of a trademark, and really owning your name and owning your brand, which in some cases is very important for, let's say, more services-based companies.
The other misconception is that there's this thing called trade secrets and trade secrets have to