business
FROM INVENTOR TO ENTREPRENEUR:
OPTIMISIM VERSUS REALITY
© Phil Thompson – Business Lawyer, Corporate Counsel – www.thompsonlaw.ca
To many people, the definition of an entrepreneur is inventor who goes from the workbench to the marketplace to a major stock exchange. However the rag to riches scenario is an exception to the rule. A recent study by a Canadian economist puts reality into measured perspective.
No Surprise: The Odds Are Stacked Against You
In 1998, Thomas Åstebro conducted follow-up telephone interviews with 1,091 Canadian inventors who had their invention assessed by The Canadian Innovation Centre (CIC)1 in
Waterloo, Ontario between 1976 and 1993. The CIC serves independent inventors in Canada and includes an Inventor’s Assistance Program (IAP) that evaluates a specific idea or invention before it reaches the marketplace in return for a small fee. Mr. Åstebro used the IAP database to track down and contact over 1,000 inventors to assess the commercial success of their invention in order to determining the pre-tax internal rate of return (IRR) generated by the inventions.
Here are some of the things he found, as reported in his 2003 paper in The Economic Journal2:
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2
93% of the polled inventions never reached the market, representing odds of 1 in 14.
Of those that did reach the market, only 40% actually produced positive returns, representing
2.8% of the original total or odds of 1 in 36. In other words, 60% of those that actually made it to market lost money.
The average return of all the inventions that made it to market was 11.4% pre-tax, which was lower than the average return on a long-run portfolio of high risk investments (18% to 23%) or early stage venture capital funds (22%).
However, even this 11.4% IRR was skewed by a few very successful inventions. Six inventions (0.55% of the sample, or 1 out of 181) realized 1400% returns, and one invention
(0.09% of the sample, or 1 in a 1,091)
OPTIMISIM VERSUS REALITY
© Phil Thompson – Business Lawyer, Corporate Counsel – www.thompsonlaw.ca
To many people, the definition of an entrepreneur is inventor who goes from the workbench to the marketplace to a major stock exchange. However the rag to riches scenario is an exception to the rule. A recent study by a Canadian economist puts reality into measured perspective.
No Surprise: The Odds Are Stacked Against You
In 1998, Thomas Åstebro conducted follow-up telephone interviews with 1,091 Canadian inventors who had their invention assessed by The Canadian Innovation Centre (CIC)1 in
Waterloo, Ontario between 1976 and 1993. The CIC serves independent inventors in Canada and includes an Inventor’s Assistance Program (IAP) that evaluates a specific idea or invention before it reaches the marketplace in return for a small fee. Mr. Åstebro used the IAP database to track down and contact over 1,000 inventors to assess the commercial success of their invention in order to determining the pre-tax internal rate of return (IRR) generated by the inventions.
Here are some of the things he found, as reported in his 2003 paper in The Economic Journal2:
_
_
_
_
_
1
2
93% of the polled inventions never reached the market, representing odds of 1 in 14.
Of those that did reach the market, only 40% actually produced positive returns, representing
2.8% of the original total or odds of 1 in 36. In other words, 60% of those that actually made it to market lost money.
The average return of all the inventions that made it to market was 11.4% pre-tax, which was lower than the average return on a long-run portfolio of high risk investments (18% to 23%) or early stage venture capital funds (22%).
However, even this 11.4% IRR was skewed by a few very successful inventions. Six inventions (0.55% of the sample, or 1 out of 181) realized 1400% returns, and one invention
(0.09% of the sample, or 1 in a 1,091)