The ‘business angel’ can offer innovative guidance

From The Herald, by Bernard Frutin

To invent is to create. To innovate is to alter or change, usually in response to customer demand.

Naturally there are many more innovations than there are inventions. However, I prefer to invent. That is how I earn my living. If my experience is anything to go by, Scotland is full of inventors. Every second person I meet tells me that they have an invention or brilliant idea. Very, very few do anything about it. But some go for it!

To invent is an act of creation, like sculpting or painting. A project comes to mind and if it is potentially simple—for simplicity is the key to successful inventions—and provided the concept has some obvious market potential, I will develop the project.

A creative inventor is like an artist painting a landscape. Neither works best under any form of external discipline. Financial pressure advising the use of more red paint as it is less expensive than black is just not acceptable. Neither is team work. Inventors and artists must create by their own efforts. Cash itself is not the driving force and never will be.

Financial institutions find this hard to understand. British financial institutions all demand a measure of discipline, they require monthly figures, cash-flow forecasts and updated weekly or monthly progress reports.

Given the choice of offering funds to either management buy-outs, or dedicated teams of development engineers or scientists, highly focused on a specific well-defined project, or, for example, a creative inventor like myself, the finance houses, under pressure to complete within their own market and protect their shareholders’ fundds, will in general offer financial support to what they see as the lower-risk option.

But "real" inventors will still invent—at least once! They will borrow the initial funds from banks, friends or even mortgage their houses. Unfortunately this cash runs and therein lies their next major problem. I speak only from my own experience as an inventor, but I believe that as a rule of thumb the original attempt by an individual inventor to cost his development will be out by a factor of as much as five. Five times his initial cash estimate will be required, fiv times the timescale to get his product to the market place.

So where does the inventor turn to access additional funds? Banks will generally refuse second tranche funding—so back to the venture capitalists and financial institutions with the inevitable result. Thereafter these partially developed ideas are then picked up by the very companies the inventor had appraoached with the original concept. This company then innovates using its own in-house expertise and another product is launched with no credit, financial or otherwise, given to the British inventor.

The problems faced by inventors are not new. In 1815, 181 years ago, John McAdam of Ayr, with no formal qualifications, set out to develop an improved road surface. He also financed his invention personally and it impoverished him. Interestingly enough, eight years later he sought a grant from public funds, James Watt invented his steam engine in 1769; five years later he went into partnership with a wealthy Birmingham businessman.

The modern equivalent must be a "business angel" where the "patron" could, if he chose, not only invest, but personally participate in the future development of the project in a less structured manner.

This concept can be stimulating, interesting, tax advantageous and, provided the two parties respect each other’s personal aspirations, could prove to be commercially viable. This is possibly one of the more promising avenues for the cash starved inventor and I would like to see this whole area of financing developed and publicised.

The "business angel" may also be able to introduce the inventor to contracts to assist in the marketing of the product. The inventor traditionally can sell to two main markets - end-user consumers and companies who will buy the concept and develop it for sale to the market.

Inventors should appraise the relative benefits of selling the product and selling the concept. With the help of a consultant they can examine the strengths and weaknesses of each option and may want to examine the potential market for the product before reaching a positive decision.

A fresh understanding and approach is needed to tap into the substantial potential value of British inventors as yet unrecognised and under-utilised. As a general rule, inventors do not invent service industries. We invent gadgets, gismos, mechanical devices, etc., and they all need to be manufactured. What fertile ground for new business start-ups and job creation. We represent a significant untapped UK resource.

Bernard Frutin MBE of Rocep Lusol Holdings is a recognised inventor.

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