IP bank shows that potential of Chinese market can be turned into hard cash 15 Apr 13
IAM has previously reported on the growth of patent funds within Asia, but here we take an in-depth look at one of the entities mentioned, IP Bank-China. I sat down with Kersten Hui, a managing director of the Infinity Group to find out more about the scope of the fund.
IP Bank-China was created in 2010 under the auspices of the Infinity Group, an Israel-based private equity firm that was created by the China Development Bank and the IDB Group in 1993. Overall, it manages over $700 million and RMB 2 billion. Hui notes that “Infinity has set aside dedicated funds for IP Bank-China”, but declined to disclose the exact amounts that are available.
The bank is focused on “acquiring companies, brands, and intellectual property for licensing and commercialisation in China”. It has over 15 offices in the country and a 90-strong team, whose members work across the Infinity Group and IP-Bank China. The China Development Bank primarily provides the RMB funding while the dollar financing has come in from “investors all over the world”, Hui says.
“Our business model comprises of finding intellectual property from Israel,” Hui explains, “and then we identify who in the Chinese market might need these types of assets.” One example is that of Power Paper, a producer of micro-batteries (slender enough to be printed on paper) and already a portfolio company of the Infinity Group. Hui says: “They were struggling with their key product for quite some time in Israel. They had incorporated the battery into an anti-wrinkle facemask for commercial purposes. We carved out the Chinese patent from the global patent and started looking for suitable partners in China for entirely different applications.”
The end result was a partnership with a Chinese printing company, Hui continues, and the battery was then assimilated into anti-counterfeiting labels. “We added a label in the packaging for cigarettes, wine and other kinds of alcohol. When you open the packet, a light, powered by the battery, turns on, showing the consumer that this is a genuine product.”
The group has a variety of approaches. “Some patents we buy and later sell. Some we license. But some patents we use as currency in exchange for equity in companies,” Hui states. In the last 30 years, he says, the Chinese economy has developed to a stage where companies are investing in R&D and have a healthy appetite for intellectual property assets. However, for those that don’t have the financial means to purchase IP Bank-China’s offerings, the group will consider exchanging the patents for equity. “Our focus is not on buying and selling,” he says. “We have an investment in the growth of the company and in growing and developing the product together with our Chinese partner.”
The group’s strength, according to Hui, is that they are on the ground in China and have a broad geographic reach that is underscored with a well-established team. “We see a different entrepreneur every day,” he says. “That enables us to judge which entrepreneurs might succeed and helps us find the right partner to pair up with the right technology.” IP-Bank China is sector oriented and focuses on clean tech, medical, material and high-end manufacturing technologies.
The group is directly associated with two incubators in Israel, which is how they identify and assess the kinds of technologies they will be focusing on. “We approach the people that have already developed IP,” he says. “We are not interested in the very early-stage ideas but in those that have passed the incubator stage.”
He clarifies the difference between what he sees as a conventional IP fund, and IP Bank-China, noting that a typical fund may simply be concerned with the acquisition and sale of patents. “We don’t buy patents for a dollar and flip it for five. That’s not our business model. We identify the IP internationally, we help find a Chinese partner and we grow together with that company. We are helping Chinese entrepreneurs gain access to the market with a low entry point and we then share in the results.”
The progress of IP Bank-China is well worth following. It is on the ground in the country and is actually doing deals with Chinese companies. And, crucially, its business model is predicated on the ability to enforce patents through the Chinese courts. For others looking to take advantage of the potential there undoubtedly is in China, these are two very promising signs.
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