Most of the larger manufacturers will require you to sign their submission documents before they will look at your information. These documents are designed to protect the manufacturer against an individual’s claiming that the company took his idea. The submission documents usually state that by signing them you are aware that they may have already seen, been working on or previously rejected the same or a similar idea. If you want to move forward with them you must sign these forms.
Submission forms that you send to manufacturers can also be considered part of your “paper trail” of proof that you disclosed your invention to them should you ever need it. Be sure to keep copies of everything in your files.
If the company is not ethical and you show your unprotected invention or idea to them, they can simply take it. Therefore, the thing to remember is to make sure that you have carefully followed your early protective procedures before approaching anyone regarding licensing. They protect themselves and you should do likewise.
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If you currently do not have a business and it is your desire to build a business around your invention, you can do it, but it becomes a much more risky proposition. In the example above, the business owner can lose some money if the product fails, but he is not likely to lose the entire business unless he has risked the company’s stability on the success of that product.
If you choose to build an entire business around a new product, not only will you need a substantial amount of start up capital, including enough to survive until the company becomes self-sustaining, you will need to be virtually certain of the success of the product. There are some astounding success stories of people who have built profitable businesses around a single product. It can happen. But, the odds against huge successes with businesses built around a single product seem to be getting steeper. One important reason is that the buyers for the major retailers will not even allow single-product vendors an appointment to show their product to them.
If you have only one product to sell to a major retail chain, you are not likely to be given that opportunity, no matter how great your product may be. While the retail stores are made to look cheerful with bright colors, bright lighting and background music to enhance the shopping experience, to the retailer it is very serious business and each inch of shelf space is allotted to a particular manufacturer in a map of the store, known as a planogram.
Getting your product on that planogram is not an easy task if you have but one product.
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Marketed as simple and easy to own, stocks are actually the most complex and emotionally challenging of all asset classes. Powerlessness,
unmanageability, regrets, fears, social pressures, herd behavior, and complexities galore are the norm. Stock investors are primarily an optimistic group. They believe that stocks they purchase will increase in value. They all know stories of stocks that increased in value by 100 times or more. The potential rewards appear unlimited. Of course, most stock investors are aware of the risk of loss, so they diversify and employ other cautions. Still, every stock investor believes that one or more of his stocks or mutual funds will have fantastic returns.
Businesses issuing stock encourage this belief and are all too happy to accept the investor’s cash.
We have now talked about enough different forms of risk that the relationships between risk and change should be clearer. In psychological terms, the word change tends to have positive connotations, and the word risk of course has negative connotations.
But they are much the same thing. Some kinds of change are statistically predictable and hence manageable. People are born, work, retire, and die. Their activities—whether they are inventors or thieves—affect the lives of others. Their presence or absence creates myriad opportunities and threats, and adjusting to these changes creates both opportunities for gain and some dangers. In addition to the activities of individuals, new combinations of circumstance for gain or loss arise constantly owing to the activities of markets and institutions.
Each day brings new prices for securities and new values for currencies and commodities. Other events blow through the global economy with some regularity: hurricanes, election surprises and coups, strikes, earthquakes, terrorist attacks, transportation accidents, and so forth. Conventional risk-management tools seek to minimize the hazards and perils; in a global economy with massive financial resources, a lot can be done and a lot is done.
Human and intellectual capital are only valuable when embedded in an enterprise. This point is seemingly obvious but needs to be repeated now because it has some less obvious ramifications.
If I am unemployed, my education and experience are doing me little economic good. But the day I show up on the job, I create a revenue stream for myself. If my employer chose wisely in hiring me, I will subsequently add value to the enterprise as well.
Indeed, the value of a human asset will depend enormously on the nature of the enterprise in which it is embedded. A great quarterback will be more valuable on a good team than on a mediocre one—if only because he will be given more time to throw and because his receivers are more likely to be open.
Furthermore, if he is traded to a contender, he may take that team to the Super Bowl—he is more valuable on the contending team. From a value viewpoint, his present team should value not only his direct services, but also the option of trading him to a competitor, provided that is a realistic business option. In effect, he has no intrinsic value; his value to the Chargers is the difference in their value playing with and without him; his value to the Bills is likewise the difference with and without his services.
If the first number is substantially larger than the second, the Chargers and the Bills have room for a deal that creates additional value for both teams. Of course, his value is zero to an organization that isn’t into football, say a ballet company, which cannot use his talent at all.
Intellectual property is equally situational; a patent will be more valuable embedded in a firm with a position in the market than in a firm without such access.
When the value of an asset is sufficiently situational, there may be important opportunities to create value by framing options.
Specifically, the asset, like the quarterback, may be less valuable in the enterprise in which it is currently embedded than in alternate uses.
In the case of hybrid ARMs, both the purchase and rate and term refinance (no cash out) risk multipliers are greater than 1.0. At first blush, this seems counterintuitive, especially in the case of the purchase loan, which is generally perceived to be stronger. However, we believe the findings are due to the following:
Purchase borrowers may be first-time borrowers or “stretching” to purchase their home. In addition, they may employ a second lien loan to finance their down payment. In either case, they may be overleveraged.
In addition, purchase borrowers have, by definition, no time in property, and this may influence the propensity to default.
Rate and term borrowers are not extracting equity but rather seeking to lower monthly payments. The reluctance to extract equity or the absence of equity available for extraction may signal a weaker borrower relative to a cash-out refinance.
Fixed rate and term refinance default risk is less than refinance cash out or purchase. This borrower is most likely reducing rate and/or extending term. This, in turn, lowers the borrowers and reduces the probability of default.
Triple X is one subgroup in the broader life insurance securitization market. Total life insurance securitization reached roughly $18 billion in outstanding volume in mid-2007, with issuance of approximately $5 billion in 2006 and $2 billion year to date through June 2007. The life insurance securitization market divides into the following:
- Triple X securitization, which funds the regulatory capital requirement for level premium term life insurance policies. Deal terms may be as long as 30 years,
- Embedded value securitizations (also referred to as value-in-force monetization) release the profits “embedded” in future cash flows from a defined block of business,
- Catastrophic mortality bonds pay the issuer in the event of spikes in general population mortality by referencing a mortality index. These bonds can provide insurers with a level of protection that may not be available in the reinsurance market,
- and New business strain funding has been used to finance the upfront costs of writing new business by raising debt against future premiums.
Aside from the difference in motivation, embedded value and Triple X securitization differ in terms of collateral. Triple X transactions retain cash from the debt raised as collateral in the deal, whereas embedded value transactions are collateralized by future profits from a defined block of business.
Whereas Triple X securitization is specific to U.S. law, embedded value transactions have also been executed in the United Kingdom.