Development Fees versus IP Rights:
Creating an IP Portfolio without VC Funding
Bernd Schoner
ThingMagic LLC
MIT Enterprise Forum, September 18, 2003
No Money Down: Raising Capital from Unconventional Sources
ThingMagic LLC / September 18, 2003
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Outline and key messages
1. ThingMagic’s approach to funding
 It’s all about creating an Intellectual Property
Rights (IPR) portfolio …. and giving some of it up!
2. Case Study: Radio Frequency Identification
(RFID) technology -- an ill-defined market
 In an emerging market the timing of investments
is everything!
ThingMagic LLC / September 18, 2003
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ThingMagic – Business Model


Design, develop, and prototype
communications and sensing systems

Provide technology services but
participate in the upside of successful
products

Earn royalties and spin-off promising
technologies
Avoid equity funding and stay
independent
ThingMagic LLC / September 18, 2003
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Case Study: RFID technology I
Tags
Antennae
Reader
ThingMagic LLC / September 18, 2003
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RFID technology II

The MIT Auto-ID Center
promotes the use of RFID
chips in the supply chain

EPC tags to replace UPC
(barcode)

Need for cheap tags

Need for intelligent readers
ThingMagic LLC / September 18, 2003
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News from the RFID industry....

Auto-ID Center signs up 100 sponsor companies

Gillette buys 500 Million EPC tags

Wal-Mart imposes EPC readiness on its biggest suppliers
but ....

RFID tags have been around for 15 years, …. as tomorrow’s
big opportunity

Many RFID companies/ventures have failed

Worldwide sales of readers is limited
 timing is everything!
ThingMagic LLC / September 18, 2003
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ThingMagic’s entry into the RFID market
Sponsor Auto-ID Center
Co-design reference design
2001
Licensed technology
to Tyco/Sensormatic
2002
100 units sold to
the Auto-ID Center
ThingMagic LLC / September 18, 2003
Next generation
product release
2003
2004
Product release
7
Funding, marketing, and productizing
strategy

License technology to manufacturers in exchange for
license fees, royalties, and development support

Establish the reader platform as the preferred hardware
platform in the industry

Pursue a software licensing model

NO hardware
manufacturing

NO end-user sales and
distribution
ThingMagic LLC / September 18, 2003
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Summary: How to build a company
with customer development fees?

Retain as much IPR as possible

Be prepared to give up IPR for cash

Don’t accept “this is not how we do business ” as an answer
to a creative proposal
What you probably won’t have/do…

Big marketing and development budget (top down approach)

Direct sales and distribution

Expensive travel
ThingMagic LLC / September 18, 2003
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