This corporate matchmaker helps companies find new ideas

Ray Kurzweil is a ‘futurist’ – a scientist who makes predictions about the future of science and technology. He’s also the inventor of the flatbed scanner; as well as technology which translates written text into synthetic speech. So he’s not just a dreamer – he speaks with authority.

Now, a few years ago, Ray framed the ‘Law of Accelerating Returns’. This was an attempt to explain the rapid technological changes that we’ve seen in recent years. In Kurzweil’s view, progress doesn’t happen in a linear fashion – at the same rate every year – it accelerates.

So he believes we could see 20,000 years’ worth of progress in this century!

This might seem a bit fanciful at first glance. But consider how much has changed in the last few decades. Even if we don’t sign up to Kurzweil’s vision of an exponential rate of change; we can all agree that we live in a period of amazing technological development. And this brings with it some fantastic opportunities for companies which can latch on to the next big thing.

Today, I’m going to introduce you to a company that’s aiming to piggy-back on this vitally important trend.

The best way to find new ideas – buy someone else’s

Identifying new ideas and patents can generate enormous returns for companies – something a lot of global giants have picked up on. Take Google, for example. The company has used some of its vast profits to fund the Google X division, which is dedicated to developing what Google calls “moonshot” ideas. The driverless car, Google Glass, and Project Loon – which aims to provide universal internet access through a network of balloons in the stratosphere – are just some of its projects.

Of course, Google has vast resources and a mandate to pursue cutting-edge tech ideas. But how do companies without such lavish backing develop new ideas?

This question has become even more important in the wake of the economic crisis. Research and development (R&D) is an easy area to cut back on when a company is under short-term pressure, and development of new products can get dropped or delayed. Pure research is an even riskier investment, making it especially vulnerable to the bean-counter’s axe.

So what’s the best way to deal with it?

Well, one solution is to outsource. Don’t fund your own researchers to find new ideas, buy someone else’s discoveries instead. There’s plenty to choose from, after all: over 100,000 patents are filed every year from universities worldwide. And since universities are academic institutions, virtually all of these are up for grabs.

For long-time readers, this might sound a bit familiar. I’ve written before about IP Group (IPO) and Imperial Innovations (IVO), two Aim-listed companies that are successfully commercialising technology coming out of our university system. They are specialist venture capital firms who use their close relationships with a select group of universities to invest in and incubate new companies based on research discoveries.

But what about companies that don’t have this sort of special relationship? How are they supposed to get involved? Often, these businesses know what problems they’re trying to solve; but don’t necessarily know whether the solution exists. And if it does, they don’t know where to find it.

That’s where today’s company comes in.

It’s called TekCapital (TEK) and it works on behalf of established companies that are looking to acquire new intellectual property. Let’s take a look at its innovative matchmaking process.

TekCapital matches the right companies with the right patents

Here’s how it works: a company looking for new technology will brief Tek on its IP requirements and pay a monthly retainer. Tek will then use a clever search algorithm to narrow the field and identify likely patent candidates. These are then submitted to the appropriate member of Tek’s advisory board to be reviewed.

This board consists of over 30 world-class experts. There are chemists, life scientists, engineers, software and electronics specialists, all from leading universities and institutes as well as industry. They work on a consultancy basis, and their job is to whittle the shortlist down to a ‘top ten’ of IP prospects to be presented to the client each month.

When the client bites and decides to acquire one of these patents, Tek gets a success fee. This can vary depending on the complexity of the transfer but Tek reckons its involvement significantly speeds up the process to as little as six weeks.

And it’s certainly got grand ambitions. Last week I spoke to the US-based CEO, Cliff Gross. He estimates that 80% of the world’s peer-reviewed research comes from over 3,300 institutions in 160 countries. Tek is connected to this vast pool of innovation and aims to work on behalf of the 2,000 UK and 4,000 North American technology firms that are looking to acquire intellectual property.

How big could this get?

In theory, the market size is huge.

And it’s thought that 20,000 patents go unlicensed each year because the market fails to match buyers with the right patents. At an average patent price of £225,000, that’s a £4.5bn opportunity for Tek to go at. What’s more, the company’s senior management have transacted over four hundred technology transfers in their careers; so they should know their way around this market.

It’s still early days though. Tek listed in April and this is its first year of operations. The company will break even when it has 35 clients paying a retainer – success fees will be the icing on the cake. Broker Northland reckons Tek will move into serious profits in 2016 and it’s easy to see how the momentum could build from there.

Even if Ray Kurzweil is only partly right, there’ll be no shortage of demand for new patents and intellectual property in the coming years. And Tek can act as the matchmaker. Definitely one for the watch list.

This article is taken from our FREE penny share investment email Penny Sleuth.
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