This is real talk. Investment bankers pay seven figures if you prove seven figure elements.
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CLICK BAIT OR MONEY CLICK?
It is totally fair to ask this question. Most are attempting to get a read, a scroll or five minutes’ worth of read time. Most articles are designed to rank higher in an algorithm. This article contains true sticking points. It contains real knowledge, with real pricing. In here is a genuine approach no one is teaching you.
A true way to create liquidity from intellectual property.
If your wallet is a dry sand bed you’re going to want to water the ground with my story.
I must fictionalize certain areas to protect copyrights, disclosure requirements and not violate the business strategy of a company I am associated with. I’m not offering advice or recommending any company to invest into. Everything about the company I discuss is assumed. The last thing I will do is jeopardize real money on the table.
The company in this article is fiction but the approach is a real truth.
Please don’t ask me what company I apply these concepts to. I won’t tell you in this article or on a free public forum. All you need to know is this works. It applies to the following industries: biotechnology, nanotechnology, FinTech, and Energy.
Before the lesson starts let’s start off with a little education. You must know what marketable Intellectual Property is. You can’t understand the lesson if you don’t know. Remember you are looking for intellectual property you can cash out on. You are not trying to find a new invention which might do something.
Are you the person who can’t invest ten minutes to earn a million bucks? I guess we both will know when you either 1) read the entire article or 2) swipe up before the words are done.
Amazing how many people fail at free but then complain when they’re broke right? If you make it to the end clap.
INTELLECTUAL PROPERTY
Everyone has an idea. Is that idea worth patenting? Remember, our dear friend Terrence Howard has many patents. Not all patents are capable of commercialization. Not all ideas can be patented. Sometimes ideas which solicit patents have no buyers.
Fusion technology patents solicit money but are the exception. Fusion technology cannot produce results. The energy required to generate fusion exceeds its output. Today there are zero customers for fusion reactors. Governments want a new way to create energy. In that sense Research & Development are important aspects of certain industries. Exceptions are only marketable to national security or defense. Chances are you are not a defense company. So we will skip the exception.
First your idea must be eligible to receive a patent. There are three types of patents.
These patents are:
Utility patents
These patents are granted to anyone who invents or discovers a new and useful process, machine, article of manufacture, or composition of matter, or any new and useful improvements of these (2).
Design patents
Patent laws provide for the granting of design patents to anyone who has invented a new, original ornamental design for an article of manufacture. The ornamental characteristics must be embodied in or applied to such an article. The subject matter may relate to the configuration or shape of an article, surface ornamentation applied to it, or the combination of both. A surface ornamentation design is inseparable from the article to which it is applied and cannot exist alone. It must be a definite pattern applied to an article of manufacture (2).
Plant patents
The law also provides for the granting of a patent to anyone inventing or discovering and asexually reproducing any distinct and new variety of plant. This includes cultivated sports, mutants, hybrids, and newly found seedlings, other than a tuber-propagated plant or a plant found in an uncultivated state (2).
There is a non-official fourth type of patent.
I was a part of a previous company who did this patent. This is called a “Process Patent”. If you can demonstrate to the USPTO there is a unique process, different form any other process, which truly produces a unique result not duplicatable by any other process (tough to prove) than you can get a patent issued under in this format.
Now that I’ve taken you to school a bit. I can get to the application of your million-dollar earning question.
How does a million dollars get earned off intellectual property?
Pay attention.
LOOK FOR AN UNOFFICIAL BANKRUPTCY
This is your first lesson. It is tough to see people go through hard times. It is tougher to watch a promising company go through hard times. Often companies going insolvent (meaning they have no more money) are undergoing an unofficial bankruptcy.
This is where you start. Find a company which invented a product and lost its funding to go fully commercial. You’re not looking to invent. You’re looking for an invention which had money put into it, produced a real working product but failed to take off. The company is either 1) about to not pay its annual filing fee or 2) recently didn’t pay it.
This happens when promising inventions fail to take hold of their intended market.
Insolvent companies contain people who quit and allow the company to lapse (typically do not file annual report). With inventions there’s usually little litigation. When inventors build something it’s tough to argue misappropriations. If there’s an invention which produced a prototype it’s also hard for investors to allege fraud or misappropriation.
In these cases, investors were promised the world but instead received a small plot of land in the middle of an ocean. No one comes. Not one soul sails by. The inventor is master of a deserted island. His investors are the crew who sailed with him to nowhere.
Most simply write off the investment on their taxes.
Don’t look to create look to innovate. Find someone with a real thing but lost everyone’s confidence.
THE IMPORTANCE OF COST BASIS
This is your second lesson. Find a person who founded a company and documents all the costs they spent to get you them where they are at. They need to show you a finalized product (a prototype, a formulation, or a working software demo).
This is important. They must be able to prove hard dollars spent through 1) receipts, 2) wires, 3) credit card statements. These costs need to produce an actual product. If the person cannot show you something physical than this doesn’t work.
This strategy only works for intellectual property which can document “hard costs”. Money for paperwork doesn’t work.
Don’t count a salaries or professional fees unless the person was a third-party vendor. The third-party vendor needs to be a person who is 1) not a current shareholder, 2) not a former or current officer and 3) must not be a founder. The third party must be hired and be a reputable company third party accountants can verify. Individuals don’t work. Only payments paid through invoice can be used.
When a person creates actual product real costs are spent. In the rare instance a tangible invention with a filed patent exists with minimal to no costs…you must abort.
No liquidity can be created with intellectual property which cannot document hard costs.
CONDITION OF PREVIOUS INVESTORS
This is your third lesson. This is a one of the important features. This company has investors in its failed venture. Most of these people are probably unhappy.
The investors must not be litigious or threatening lawsuits. You need to talk to each one, and assess their temperament. Find out if they are willing to let someone else try. Tell them you want to make the failed company successful. Tell them you don’t want them to lose their money.
Do not ask for any money from them. They gave money once. Experience has taught them it won’t work. You need new investors and new stakeholders. You only ask for cooperation. Explain you will start over, form a new company, and do it right. All previous shareholders will be given shares in the new company.
You must explain to each one they will be diluted to make room for the new people who will place money. This will also include a dilution for your work. You will work for shares in the new company and no money.
By differing compensation, you illustrate a similar position. Stress you value your time, and you don’t waste it. Explain no one works for free. Your commitment to get paid later proves your confidence you know what you’re doing.
You must obtain consent from each one. Use someone called a Broker Dealer (this is a Securities Rule Thing) and have all parties sign off on dilution. Contract the Broker Dealer for securities compliance. Including the Broker Dealer’s compliance officer on approving the dilution.
Once they agree and you sign your dilution explain there will be a share swap. A share swap is where a company trades shares of one company for shares of another. 100% of a failed company will be exchanged for a pre-negotiated amount of percentage in the new company. I typically go for half the company.
50% of something is better than 100% of nothing. A failed company becomes a wholly owned subsidiary of the new company. You can still explain to each investor they are able to write off their entire investment in the old company. So, there can be tax benefits if structured properly. Consult a CPA for this.
FORM A NEW COMPANY
The fourth lesson. If the company doesn’t have any legal troubles call the company something similar to the old one. If the company was General Energy Incorporated call it a new company like General Energy International Incorporated.
This is important because it shows an easy relationship with the old company to auditors.
If the company has legal troubles than consult an attorney. There are too many ‘what if’ scenarios to run through – so we will just assume there are no legal issues to finish the structure.
In our fictional example I am going to assume 1) the inventor spent 2mm USD in investor money on development costs, 2) the inventor and all investors are willing to dilute to 50% of the new company, 3) you will be given 50% of the new company, 4) there is a completed prototype and 5) the company is in the energy sector.
Explain your shares are the “piggy bank”. This means when an investor needs to put money into the new company you offer shares directly. This prevents further dilution to original investors and the inventors beyond your initial dilution.
This is a crucial aspect of the deal. If you miss this step, you will get no cash out event. Pay attention. Important. Get this signed off on by 1) original shareholder attorneys, 2) inventor attorneys, & 3) broker dealer compliance. This is in addition to the original shareholders agreeing and the inventors agreeing. You need unanimous consensus for this to work. One person complaining will ruin it.
Note: Why The energy sector. I pick the energy sector because if you have a working power generator and it is available to the grid the company can secure what is called a Power Purchase Agreement (PPA). These are straight forward agreements where either 1) a government will buy electricity from you or 2) a big utility company will. This example makes it easy for me to do some rough valuation calculations in this article to illustrate a viable cash out event.
HIRE A 3RD PARTY VALUATION AGENT
Fifth lesson. This is important. You need a financial analyst who specializes in Mergers & Acquisitions. They need to carry a Certified Financial Analyst (CFA®) or an Accredited Financial Analyst (AFA®) designation.
You will pay the costs (typically anywhere from $7,500 to $35,000 depending on the complexity) to appraise the company shares. This is like when you sell a house. You always get an appraisal before you put it on the market. Similar, no one pays a price for a private share without an appraisal on the stock.
No broker dealer will warrant a share price for sale without a third-party valuation. Remember, you need to prove someone your shares are worth something. Third-party valuations substantiate a price.
PAY THE 3RD PARTY VALUATION AGENT THROUGH THE NEW COMPANY
Sixth lesson. You need to deposit the cost of the valuation to the new company in the new company’s bank account. You book this as your paid in capital to establish consideration for the shares in the new company you formed.
You always form the company first. You are the initial owner. Your new company will have no rights to the failed company at this point. The only relationship with your new company at this point is it’s a new company you own.
You do a stock swap only after you have paid in the capital to the new company and own all the shares.
This is critical because 1) it establishes a cost basis, & 2) makes you not owe the IRS taxes for receiving shares without paying for them.
If you receive shares and don’t pay anything for them, you will generally have to report it as ordinary income on your tax return (be careful not to accept shares after the transfer of intellectual property). You could owe thousands tor possibly hundreds of thousands of dollars on money you didn’t even receive! Be careful on this step and always use a tax professional.
Pay the valuator only after there is an agreement from the failed company to do the stock swap. Make a provision of the stock swap your new company will pay for the cost on a pre and post transaction basis.
The payment of the valuation is the consideration your new company offers to the failed company to do the transaction. Since the valuation is for their benefit, it is their cost. By paying for it you establish consideration for them. Consideration must always be offered to legally bind a contract.
CONDUCT THE STOCK SWAP AFTER THE VALUATION
Seventh Lesson. The valuator will do the valuation on a pre-investment basis and a post-investment basis. The pre-investment basis will be easy because it is just your money in the deal to pay the valuator.
The post-investment basis will factor in the costs it took to develop the technology you are acquiring. This is where the delta is made to create a liquidation event for you. This is why receipts and proof of payment are so important. The valuator can document this and verify it. This is what accountants and CPAs will use to approve the intellectual property’s value on your balance sheet. It is called cost method accounting. Very important.
In this example, you will have an appraisal contribution of anywhere from $7,500 to $35,000. The initial value of your company is only what you put into it. By taking the Cost Method approach the total value increases to $2,000,000. Since you are the 100% owner initially you then get diluted post stock swap. In this example, we assume you successfully obtain 50% of the new shares. After the share swap your 50% is now appraised for $1,000,000.
You have an unrealized gain of anywhere from $935,000 - $992,500.
Pay attention. This is a real structure. You can use this structure to hustle a million from a small amount of money. Remember. This is not theory. This is application.
CONTRACT AN INVESTMENT BANKER TO RAISE MONEY
Eighth Lesson. Next take your real company, with a real invention, with real cost, and a real third-party valuation for 2mm to a licensed US Broker Dealer. Tell them you have a business proposal. You should use the original inventor(s) to work a budget, financial forecasts, and a real plan how to take it to market. Hire the Broker Dealer to raise money and perform compliance for securities laws. Based on this new business model substantiated by a third-party valuation agent the Broker Dealer will agree if a good price can be substantiated. The Broker Dealer will figure out what price to price the shares at based on your new valuation.
Once you have a new plan, a budget for a future capital raise, and have hired the broker dealer with the new company contact the same valuation agent. Ask them to value again the company on a pre and post investment.
THE ASSUMED BUSINESS MODEL VALUATION
Eight Lesson Assumptions. Let’s assume the company needs 5mm USD to run its business plan model. Under this model we will assume 30mm USD in revenue over 36 months. Let’s say it’s a healthy company and predicts a 12% profitably margin. Which works out to about 3.6mm USD in profit.
Let’s assume the valuator agrees with the profit factor. Let’s assume the technology is new and it increases the standard 5-6% assumption in energy by double. Let’s say it was proven in a lab and that’s the purpose of this new tech because the company is in the energy sector. The energy sector models companies on income factors primarily. Remember we are assuming this fictional invention actually works. If it works generally energy companies can get a power purchase agreement (PPA) successfully to substantiate these numbers. The caveat money must be shown to be available.
Hence the reason for an investment banker.
WHY THE COMPANY FAILED BEFORE
More Assumptions. The main issue with the company failing before was the main energy providers in your state weren’t interested in new technology. There’s no need to fix something which isn’t broken so they didn’t give you (or the old company) money. They just want to buy you out if you commercialize. Banks won’t lend money to something unproven. The technology to manufacture your new energy reactor is unproven and in direct competition. Hence you must rely on private money. That’s why the old company failed. They ran out of people to talk to.
BACK TO VALUATION NUMBER GAINS
Final Assumptions. Let’s assume the valuator then assigns a weighted model of 70% towards income and 30% split between assets and market (roughly 15% a piece). We will also assume the valuator gives you a 3x multiple on profit.
Under these hypothetical assumptions 70% of 3.6 million you get a net number of 2.52 million. The valuator allows a 3x multiple which gives the company post investment valuation of 7.56mm. The company earns a zero (0) for market and then gets to add 15% of 2mm (remember the original cost basis remember) which gives it another 900k for assets.
That gives the company an 8.46mm value post 5mm investment. That means that 5mm USD is worth approximately 59% of the company (simply divide 5.0 by 8.46).
YOUR CASH OUT FOR STRUCTURING
Your Final Lesson. In this example the 5mm budget included a 1mm cash out for you signed off by all parties (including the incoming investor). The investor who will provide the 5mm USD is purchasing 59% of the company for 5mm USD. 1mm USD of the 5mm USD goes to you to purchase all your shares and 4mm USD is made available to fulfill the plan.
In this example you earned nearly a million bucks for outlaying about 35k at maximum (possibly 7500 bucks) and having the knowledge & expertise to structure a deal.
Do I have experience doing this? Absolutely. I’ve applied it in four (4) separate instances and all of them closed. Each one used my valuation to negotiate a price.
Want a seven-figure value? Find a seven-figure worth inside yourself. Your worth exists. Unfortunately, my secret for seven figure items will not be discovered in this free article. You must pick up a copy of my international best-selling book “I Made It Then I Didn’t” or order “Many Paths To Profit” for that.
The concept I teach in this article is free. My personal stories are not. Don’t let pennies get in the way of dollars. There’s no such thing as a free lunch. Buy my books today to discover your worth. I think your worth a whole lot more than what people value you. If you want to actually discover what these documents, incorporating documents, attorneys and broker dealers who do this look like…it won’t be found in a free article. There’s a catch to everything! You always pay for what you don’t know.
To Your Knowledge Success!
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Sources
1) The life of Christopher Knight Lopez a Professional Hustler turned International Best Seller and Published Author of “I Made It Then I Didn’t” & Co-Author of “Many Paths To Profit” with the original shark from Shark Tank Kevin Harrington.
2) United States Patent & Trademark Office®. Website Link: https://www.uspto.gov/patents/basics/.Accessed 9 August 2024 132PM CST.
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Not a form of investment advice. Please consult a professional registered to give you advice about your individual circumstance. This article is for educational purposes and entertainment purposes only. Please do not email the author about advice on investing or strategies on making investments.
About Christopher: Christopher Knight Lopez is a Professional Hustler turned International Best Seller and Published Author of “I Made It Then I Didn’t” and Co-Author with Kevin “The Shark” Harrington “Many Paths To Profit”. Christopher has opened over 7 businesses in his 15-year career. Christopher’s purpose is to take advantage of various market-driven opportunities. Christopher is a certified Master Project Manager (MPM), and Accredited Financial Analyst (AFA). Christopher previously held his Series 65 securities license examination and was a Master Financial Planner (MFP). Christopher also held his General Lines — Life, Accident, Health & HMO. Christopher has managed a combined 286mm USD in reported Assets Under Management & Assets Under Advisement. Christopher has work experience in 33 countries, raised over 50mm USD for various businesses, and grossed over 13.0mm in his personal career. Christopher worked in the highly technical industries of: biotechnology, finance, securities, manufacturing, real estate, and residential mortgages. Christopher is a United States Air Force Veteran. Christopher has a passion for family, competitive sports, fishing, martial arts and advocacy for entrepreneurs. Christopher provides self-help classes for up-and-coming entrepreneurs. Christopher’s passion to mentor comes from belief that entrepreneurs need guidance. The world is full of conflicting information about entrepreneur identity. See more at www.christopherklopez.com.
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