Bionic: The diffi­cult deci­sion of the licence busi­ness #DHDL

As we all know, the TV lions have already seen a lot. So it’s not that easy to really amaze and inspire them. But founder Marcel Pasternak has actu­ally managed it: with his bionics-​inspired modular construc­tion systems, which contain both static and inno­v­a­tive flex­ible compo­nents, he captured the atten­tion of the expe­ri­enced investors from the very begin­ning.

The 35-​year-old inventor has made it his mission to famil­iarise chil­dren with bionics with the help of inno­v­a­tive play sets. In contrast to the well-​known building blocks on the market, his sets imitate nature, and in addi­tion to building instruc­tions for two different animals or biolog­ical mech­a­nisms, the accom­pa­nying booklet also contains a lot more infor­ma­tion about them. The aim is to make learning fun and arouse curiosity.

The lions are imme­di­ately enthu­si­astic, and after exten­sive testing, the figures are quickly analysed. The sales prices and margins are very well received, and the previous turnover of €60,000 would prob­ably not have been crit­i­cised if the valu­a­tion had been a little lower. However, the founder is asking €320,000 for 10%, which means a post-​money valu­a­tion of €3.2 million.

This is too high for Lioness Janna Ensthaler and she leaves the nego­ti­a­tion rela­tively early.

Carsten Maschmeyer and Dagmar Wöhrl express similar crit­i­cism and call on the founder to make further conces­sions, where­upon he increases his offer to 15%. You can clearly sense the interest of the lions who have not yet exited, but for the time being they are not really being specific.

Nils Glagau then intro­duces the final phase with his ques­tion about what he expects from an investor, as the founder responds with his desire for sales support. However, he also announces that the €320,000 will not be enough for him, as he needs a further €500,000 in working capital to be able to handle produc­tion and logis­tics in suffi­cient quan­ti­ties.

Carsten Maschmeyer then pulls out, also on the grounds that the valu­a­tion is now even too high for him, as he includes the working capital costs in full. Of course, this is debat­able, as working capital normally flows into the company in the form of loans – i.e. borrowed capital – but of course it cannot be completely ignored, as the investor in ques­tion is taking on consid­er­ably more risk.

But there is still plenty of move­ment among the lions. Dagmar Wöhrl had already spoken to Nils Glagau, as both saw licence deals with large toy manu­fac­turers as an oppor­tu­nity for C-​bionic. The Orthomol boss there­fore also asked whether the founder had already thought about it. He answered in the affir­ma­tive, but clearly rejected all licence ideas: he envis­aged distri­b­u­tion via the company’s own brand and was not swayed by Dagmar Wöhrl’s enquiries, who then left.

Nils Glagau also says goodbye soon after­wards, but refers back to the eval­u­a­tion.

But why is the founder so vehe­mently opposed to licensing his patented building blocks? Because a licence model is often a very “conve­nient” busi­ness model, as it can lead to good earn­ings with rela­tively little effort. In this case, for example, the patented flex­ible bricks could be inte­grated into sets from tradi­tional manu­fac­turers and C-​bionic would then receive a certain amount as remu­ner­a­tion for each set sold. Although this would be consid­er­ably lower than the margin on the sets sold by the company itself, it would also provide the oppor­tu­nity to sell a large number of the stones to customers very quickly. The licence fees could there­fore add up very quickly with a corre­spond­ingly large partner. In addi­tion, you would no longer have anything to do with produc­tion, sales and logis­tics, so you would no longer have a lot of costs “on your cheek”.

So what moti­va­tion could a founder have who rejects this model outright – and then also from an investor who would bring the contacts in the toy industry in ques­tion with her?

Unfor­tu­nately, further expla­na­tions from the founder seem to have fallen victim to the cut, but such models also have clear disad­van­tages.

Once you have signed the licence agree­ment, the success of your own devel­op­ment depends heavily on your partner: if they do not promote their prod­ucts prop­erly or if they do not meet market tastes, this could mean the end of the inven­tion. Of course, a lot depends on the exact terms of the contract and factors such as dura­tion, minimum purchase and cancel­la­tion options play an impor­tant role. But you can imagine that as a start-​up, you don’t have the best nego­ti­ating posi­tion compared to a toy giant.

However, it’s not just about the impact on success, such a deci­sion is often also about values. In this case, the educa­tional added value under­stand­ably seemed to be very impor­tant to the founder. And could he really be sure that a licence partner would produce equally sophis­ti­cated and lovingly designed instruc­tions? Or would a toy giant much rather save on printing costs and there­fore continue to compress the added educa­tional value?

The influ­ence on the design of the sets them­selves would also be limited. This can ulti­mately lead to the deci­sion of whether to become a full-​blooded entre­pre­neur, which usually involves a higher risk, but also means that you have further devel­op­ment under your own control and can continue to fully contribute your ideas and values. Or whether you take the “comfort­able” route of the licence models after all.

Marcel from C-​bionic clearly favoured the former, and finally won a suit­able lion in Ralf Dümmel, even if this cost him 20% of his company instead of the orig­i­nally planned 10%.

In return, the lion promised him support on all sales chan­nels – an omni-​channel strategy that the two now want to tackle together.

The hope is that as many chil­dren as possible will be able to enjoy this exciting – and educa­tional – toy. Janna Ensthaler has already announced herself as a customer – and hope­fully many more will follow, so that even the big manu­fac­turers will soon have plenty of compe­ti­tion.