Rights of First Refusal

As a corporation we give preference to investments that have a fit within our commercialization+ and commercial capabilities: commercialization, because this is where most costs are incurred and products can often fail; commercial because its expensive to build, deploy and gain experience in new markets.

However we recognize that products often end up far a-field from our original intentions, and we adjust. A blockbuster+ product is still a blockbuster, regardless of its eventual market. In World Class R&D we take this to an extreme, for example, you may find the product you intended is not near as valuable as a service offering wrapped around a product. Or you may find that a product wrapped within a technology is superior to a stand-alone product (see Stan Kanzius).

As the seller, you might prefer to sell the unintended product or service to someone established in that market. Selling prices often include a cut of future profits, and you may feel you can do better with the market leader. Even the corporation would stand to benefit initially from higher sales by the market leader, since the corporation is often the majority shareholder of the selling firm.

The corporation has the option to purchase the prototype+ and to commercialize it. It pays market price for the product, often including a share in the eventual success of the product. As the funder – corporation we book a very significant gain should you sell this bonanza on the open market to someone else. But it may be time for a strategic change of direction at the corporation; it may be time to enter into that market. The corporation retains right of first refusal on all products coming out of its ventures, regardless of the capabilities of the corporation to fully exploit those products. It’s how the deal is done, and is often the only way research units gain access to funding needed to find the blockbuster.

Home Page June 2010