We just spent a fair amount of time working out some very special deals.  To be honest, these were the first such events in about five years.

Decades ago, when I was a Director for the American Association of Small Research Companies, we arranged deals like these ten, twenty times a year.  Where a big company (almost always a conglomerate) was desirous of the technology that one of our small company members had- or was developing.  So, we arranged joint ventures, licensures, or outright mergers (better known as takeovers), which were (at least, financially) lucrative for both parties.

It’s not atypical for a megafirm to notice a hole in its portfolio.  Oftentimes, they’ve been working in the area and just haven’t found the breakthrough.  Something a start-up or a small firm can more easily do- not because it has all the resources of the large firm (of course, not silly!), but because the smaller entities (or soloprenuers) are directly working with the ultimate customer, have unique off-the-wall ideas (that would never be supported in a larger firm), or lack the rules and customs that make instant decisions and rapid changes difficult, if not impossible, to achieve.

But, the larger firms have resources the solopreneur, the small firm, the startup covets.  Not just cash, but credibility, distribution networks, existing customers, and better access to raw materials.   That’s why joint ventures between unequal partners- if negotiated properly- can provide superb synergies.

Since I obviously can’t discuss the recent deals (which are also contingent on achieving milestones in the next 145 days!), let’s discuss some ‘ancient’ deals so you can see how/why/when such joint efforts can work- and where they fail.

The first deal was between two equal sized firms.

We had developed some very unique bacterial formulations over the years.  Most of them were developed under contract for larger firms, farms, food vendors, and the like.  But, a few of them arose from research projects we undertook (and still do) to hone our skills and make sure we can stay at the forefront of technology.  These ammonia-degrading, phenolic-reducing, and microbial mining systems didn’t fit with our “regular business”.  So, we set up a separate firm, Industrial Microgenics, Ltd (IML), to market them.

We had great success with turkey processors (who process the bulk of their turkeys over a very short season- just when natural wastewater systems have to deal with cooler weather, so their ammonia handling (from turkey wastes) capabilities were attenuated at best.  So, that product had ‘gangbuster’ sales for three months a year, and ‘ok’ sales the rest of the year.

The other products didn’t really have seasons, but, to be honest,  we also only assigned three folks to that firm. (Production was effected in our own biological factory, on a scheduled basis.  Those so involved were not part of IML.)  Our goal was to recover our costs of development and to fund one or two other projects that excited our staff for which we could not obtain outside funding.  And, IML clearly achieved that goal.

But, we were approached by a reasonably well-funded entity in New Jersey.  They were sales-oriented (and, to the best of my recollection, had outsourced production of their two primary products, hoping to grow into their own manufacturing facility).   Something we clearly were not.

When they approached us about marketing our products to complement their existing microbial line, it was intriguing.  Of course, we being techies and they being salesfolks did not provide a great deal of mutual trust.  But, they needed products to sell (and to complement their existing line) and we barely registered 7 figures in sales.  (Please note that this was 4 decades ago-  turnover in 2020 dollars would approach $ 10 million- and for three dedicated employees [and 16 other production/quality control folks on a part-time basis), it was a nice venture.)

After a three month negotiation, we struck a deal.  Their firm did as they hoped- they had a full-line, so their sales efforts were more fruitful.  IML increased revenues by about 50%, with only a 10% increase in costs, so we were also happy.

But, after we completed their training about our products and where they were best suited,  the sales firm really wanted to take over our sales.  In other words, they wanted us out of the marketplace completely.  Our (the spawning firm, not IML) ideas didn’t preclude that- but, we also made a promise to the three folks assigned to IML and they weren’t quite willing to give up the ghost.

This is one of the primary issues that dismember joint ventures.  While the deal may consummate with both parties voicing agreement on objectives, more often than not, the objectives of the partners change.  And, that means either one firm acquires the other or the deal dies.

Our deal continued for about another 12 months.  When we informed them of the price we would want to have them completely take over the products (and the production, too), they passed.  (We have always thought they lacked the funds.)

It was decided shortly thereafter to seek out a takeover- to find a firm that would acquire the  manufacturing facility and our various product lines.  Because IML was a diversion from our core business- and we were being forced to maintain a totally new venture that would require more resources- not just cash, but time and personnel.

Overall, this short-lived joint venture was a success. Both of our firms benefited financially.  Our staff members learned a great deal more about sales and marketing.  And, the joint sales success made it easier for us to sell the core venture behind IML- the finances were in excellent shape and the notoriety of the expanded sales helped attract the right permanent partner.

I fear one of the deals we helped arrange will fall into this category.  Not that this would be a venture among equals- our client is fairly small with great technology and smallish production capabilities; the partner is a large production entity.  But, I can see the partner wanting to appropriate the product and technology for its own portfolio.  And, that would not be of any interest to our client.

Tomorrow, we’ll discuss another venture- one that failed for us but excelled for our partner.  And, what made that different.