Article
Technology Screening
Real Deals, June 17th 2004
All investors in technology-based businesses are faced with sorting
good opportunities from bad ones and the quality of the decision process
can make or break a business. It is often appropriate for the executives
within both investor and investee companies to seek outside assistance
when they are dealing with technologies beyond the scope of their previous
experience. The objectivity an external advisor brings also avoids decisions
being clouded by emotional attachment to a particular option.
All types of investor, whether a private equity fund general partner,
institutional or corporate investor, or bank, will have an interest
in getting screening right to protect their investments.
Technology screening can be part of the corporate strategic process
Technology screening happens at different levels and at different stages.
After brainstorming new opportunities, it can be part of the corporate
strategic process, to filter the best ideas and add substance to them.
The author was once involved as a consultant in such an exercise which
took place over a period of a week with a company that needed to find
new products following the demise of its traditional markets. Through
a series of structured sessions with senior management, a short-list
of opportunities that were well matched to the existing skills and resources
of the company emerged. By choosing technologies that were in the early
stages of their ascendancy, the company's prospects were transformed
and it was able to ride the crest of a new wave of growth.
Investment valuation and decisions are often based on technology
screening
In Plextek's experience, due diligence as part of valuing an investment,
or ahead of finalising an investment decision, invariably involves technology
screening. Most companies' business plans contain more opportunities
than can be realistically pursued within the management effort available.
The task here is to screen in order to minimise the disruption-factor
of activities that will dilute the chances of achieving the overall
business strategy. More generally, we have seen many cases of early-stage
investment in technology businesses where there must have been a woeful
oversight of the fundamental feasibility of the technology or product
that underpins the business. It is sad to see good money go into a venture
with no solid basis for success.
Another aspect of screening can involve a patent portfolio. As the
importance of intellectual property (IP) grows, so reviewing portfolios
to decide which patents to maintain or acquire becomes a task that should
be undertaken regularly.
Appropriate skills are needed to screen IP
The screening of patents requires a combination of commercial and technical
skills, as well as an appreciation of how the legal aspects of IP operate.
The costs involved in filing and supporting a patent are significant
and the investment is only worthwhile if the patent is strong enough
to be asserted and defended.
While a patent office's tests for granting patents rests on novelty,
inventiveness and utility, there are a number of different questions
we have to ask when screening a patent. These determine whether the
client company should maintain, discontinue or sell the IP, or perhaps
grant a licence. Questions are asked such as:
These questions are applicable to all organisations holding, or aspiring
to hold, tangible IP but are even more important to companies whose
primary business is IP. Plextek is a preferred supplier for BTG plc,
the IP and technology commercialisation company. The two organisations
work together on the development of electronics design technologies
with Plextek screening technologies identified by BTG as well as being
the partner of choice for further development, as required, to accelerate
commercial adoption.
Does the technology stand up against competitors?
Sometimes undertaking technology screening may mean benchmarking a company's
technologies against those of its competitors. A key question might
be "are the products compatible with market trends and technical
developments?" Armed with the answers, a company can highlight
strengths, weaknesses, opportunities and threats and take action to
keep ahead through differentiated technology, products or pricing. In
working with one client, an American electronics component manufacturer,
Plextek was able to identify product gaps and point the client to ongoing
research that it could use to inject innovation into its products.
In another case (this time a UK leader in radiocommunications equipment)
Plextek discovered, during what began as a benchmarking exercise, serious
manufacturing quality issues that threatened the company's reputation.
Plextek was able to solve this by implanting some of its own procedures
and technology.
There may be other applications for a technology
Companies may lack the time or breadth to recognise where there are
other applications and markets for what they do. Sometimes they are
understandably just too close to their own business or simply too busy
running the day-to-day operation to see the bigger picture. Therefore,
it is often valuable for the open-minded company to engage an outsider
with a fresh, independent, viewpoint that can provide a lot of value
in a short time.
One recent example is an assignment for a leading aerospace company.
The client company suspected that there could be technologies embedded
inside its six business divisions that could be relevant in alternative
markets and was prepared to invest in transferring these technologies.
Plextek was asked to screen all the technologies and skills that existed
in R&D to identify those that could be exploited in different application
areas. The review pinpointed a number of opportunities with potential
to provide significant growth.
Good screening minimises risks and also improves probability of
success
This article has attempted to describe a number of forms of technology
screening, all of which have relevance to the investor and investee.
Good screening not only reduces risks but also has the potential to
positively reinforce the probability of success. If conducted by the
right people, it brings fresh insights to the management team on how
to move forward and becomes an important element in business development.
Written by Dr. Graham Maile
