People love to laugh at Clinkle. It raises issues of elitism and inequality and it creates “schadenfreude” among those who build business the hard way far away from the VC cash spigots.
The end result is almost certainly that some company will acquire-hire Clinkle and then:
- Investors will probably make their money back based on preference rights. This is simply a bet that the IP will be worth more than the $30.5m raised by Clinkle.
- Founders will get a job plus a bucket load of experience that they don’t teach at Stanford.
Even if investors lose some money, that is the game that they play and if they are any good the winners more than pay for the losers. Benchmark Capital lost only $3.5m on Webvan, the poster child of hype and irrational exuberance.
Of course the hope was that Clinkle would be a breakout success. Early stage investors limit their downside with preference shares in order to get an option to invest a lot more if it turns out to be a breakout success. Clinkle’s recent launch (what looks like a pre-paid Visa card) makes it clear that a breakout success is extremely unlikely.
The downside risk for all is low if the IP is strong. Big companies in the massive payments business will pay up to acquire defensive patent portfolios – just think of how much Google paid for Motorola.
So, the question is how valuable is Clinkle’s IP?
IP has to meet four conditions to be valuable in Fintech:
- The Patent must be defensible. I Am Not A Lawyer, but Clinkle had enough funding to hire good IP lawyers and so I assume they get a tick in this box.
- It must enable something that consumers will want. Sending money electronically rather than digging around for notes and coins is certainly a convenience, so this gets another tick in the box.
- It must be better than alternative technology. This is where Clinkle starts to fall down. The story seems to be one of focusing on the icing not the cake. Sending via sound waves is only marginally more useful than sending via NFC or Bluetooth. A beautiful skeuomorphic design may make you go “ooh, ah” in a demo, but does that make a real difference to usability and adoption? Finally, being better means it actually has to work. It sounds like the gap between demo and working system was huge.
- It must be hard for incumbents to crush. I can see the story that got investors all frothy. Just replace Harvard with Stanford and you can see Mark Zuckerberg and the Facebook story. However, this is where Fintech is different. Facebook did not threaten any incumbents (well not until it was too late for the incumbents to do anything about it). Moving money puts you in a tough game where you have to either fly below the radar in a niche that nobody cares about or you have to put on a suit and make nice with the regulators.
I can see the likes of Apple, Google or Amazon paying $30.5m plus maybe some small premium to buy the patent. The worst case is that a Patent Troll buys the patent. Finding an IP pony is what these guys do – the job comes with a pitchfork and a nose clip.
This is where the lawyers have to chip in. If all that is at risk is sending data packets as tokens of money via sound waves, I can see consumers living quite happily with an alternative that sends a different token via NFC or Bluetooth. However if Clinkle got some overly broad patent that would be yet another indication of that our patent system is broken while letting some investors walk away with a bit more cash from a failed bet at the expense of entrepreneurs trying to bring real innovation to market and prevented by an overly broad patent.