Non-Existent Intellectual Property Financing: Blame it on the Banks or on the Innovators?

Recently, the Business Daily and the Star published articles discussing the boom of mobile apps in Kenya and how young developers are finding it hard to access financing to support their software innovations.

While the Business Daily points an accusing finger at the banks for not appreciating the value of IP, the Star argues that the problem is not the banks but the software developers themselves and their lack of understanding of the basics of running and building a business, including understanding your target market and how to reach it.

Below is an except from the Business Daily article: “Breaking into mobile apps market an uphill task for young developers”:

“Hardly a day passes without a news report that a new mobile application has been developed in Kenya. However, behind this success is the untold story of the challenges that developers face as they seek to break into the market and access funding to develop and market their inventions. Top on the list is lack of support from corporate organisations.
Most of the developers are either college students or fresh graduates and often lack the money to complete their projects. To compound this is the fact that financial institutions don’t offer loans for software enterprises since most banks are yet to appreciate that intellectual property is something they can put money on.”

In a response to this article, the Star published a piece titled: “Why It’s So Hard for Software Developers To Get Loans” which reads in part:

“the [Business Daily] article cites ‘lack of support from corporate organisations’, specifically that banks don’t offer loans for software enterprises because they don’t understand the value of intellectual property. That is not really correct: Banks will not finance straight-from-uni-developer start ups, mostly because banks just don’t finance start ups in any industry, period. They do business with software enterprises, but a straight-from-uni-developer start up – or more specifically, a mobile app – is not an enterprise.”

Both these articles bring out several key problems that IPKenya believes should be underlined:

1. The problem of IP valuation: The assumption here is that banks and other financial institutions would only be willing to loan money to an inventor if the inventor can put a monetary figure to its registrable IP. As we’ve discussed before, Kenya does not have any credible institutions that carry out IP valuations.

2. The lack of marketing and branding: The argument here is that banks and other lending institutions would be more willing to invest in a mobile app that has a brand name backed by creative and agressive marketing strategies. This view of the role of trademarks in Kenyan software development was well articulated in a recent article on the patentability of MPesa by Isaac Rutenberg on the Afro-IP blog.

3. The lack of a business-minded approach to software development: As the Star article above rightly notes, software developers, by and large, lack business know-how and the entrepreneurial skills necessary to develop software and mobile application solutions that respond to the needs of their target market. The examples cited in this article show that software developers failed to carry out any sort of market research, market survey or market sampling. This isn’t just a problem for software developers but indeed creators and innovators in all areas of IP. Indeed, there is a growing need to educate IP owners on basic business skills and practices to enable them to fully commercialise their IP. New business models with respect to various forms of IP have arisen and IP owners must be alive to the practicalities of their consumer markets so as not to be exploited or to make financial losses.

In sum, while it is promising to see young Kenyans leading the way in software development, IPKenya believes that these developers must not neglect the business aspect of innovation and therefore they must work towards building their products, brands and businesses in order to attract real investment and financing.

Advertisements

One thought on “Non-Existent Intellectual Property Financing: Blame it on the Banks or on the Innovators?

  1. great! Banks are the wrong institutions to approach. They are too risk averse. Venture capitalists are the best way to go.

    it would thus be difficult to approach banks more so with the ever changing software developments.

    if you have a brand, a going concern, the banks will jump in. There are deeds of mortgage for IP portfolios but do you have a brand?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s