Transcript – How A Patent Sways The Value Of Your Business
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John Warrillow: I don’t know about you, but my whole idea of patenting a business, it seems a little cheesy. The idea of protecting your ideas, and there’s so many get rich quick artists out there offering to patent some cure for baldness or the next greatest thing in whatever industry they’re in. And I generally kind of roll my eyes at the idea, which is why I was so fascinated to talk to my next guest, Timothy O’Neill-Dunne. Timothy started a company called Black Box, where they work in the airline industry and try to help smaller airlines stitch together different destinations from disparate airlines, which you can imagine, if you’re not a part of Star Alliance or whatever is actually a relatively big challenge.
John Warrillow: So Timothy got the idea to patent his technology and instead of it being just a lark or some superficial idea, it became one of, in his view, the most important things that was driving his valuation. He sold his business earlier this year to 777 Partners, and this episode, you’ll hear about how he went about patenting his idea. He’ll also talk about a word I love, which I hadn’t heard before, which is patois. Essentially, industry lingo and how important it is for you to know yours. He’ll talk about how do you retain the equity that you have in your business as you grow, and how to spot, what he calls, vested people.
John Warrillow: Here to tell you the rest of the story is Timothy O’Neill-Dunne.
John Warrillow: Timothy O’Neill-Dunne, welcome to Built to Sell Radio.
Timothy O’Neill-Dunne: Good day to you, sir. Good day, John. How are you?
John Warrillow: Yeah, it’s … I’m great, thank you. I’m great. I’m really pleased to be speaking with you. Let’s talk about this company, Air Black Box. First of all, what did you guys do? What was the business in layman’s terms?
Timothy O’Neill-Dunne: In layman’s terms, we look at the infrastructure. We’re kind of interested, not in the front end of the applications that people do to make bookings, we’re very much interested in the plumbing. So we felt that when people sort of talk about stuff that occurs in the back end that makes a reservation for an airline ticket, it’s all mystified. It’s very difficult. It’s very complicated. So what we wanted to do was to bring modern technology to some really old legacy systems, and trying to explain that to people was really hard. So we just said, “Oh, it’s a Black Box.”
John Warrillow: Let me stop you there. So I’ve just come back, as I mentioned when we were chatting before, I’ve just come back from the UK. So I flew … I took Air Canada actually. So when I went, I booked a flight. I went on to AirCanada.com-
Timothy O’Neill-Dunne: Did you buy it through Air Canada or did you buy it through an intermediary?
John Warrillow: I did. I bought it through … what I usually do is go to Google Flights, figure out what the best flight combination is, and then I usually go to the airline itself. So would I have used your software to book my ticket on AirCanada.com?
Timothy O’Neill-Dunne: Probably not, but you could have. We work, typically, on behalf of the airlines, but really we support … our customer base is airlines, airports, and even third party intermediaries because the difficulty that you get to. Now you’ve probably flown with some degree of connectivity. You changed planes somewhere along the way?
John Warrillow: No, in fact, I didn’t. I went direct from Toronto to Heathrow and then trains from there.
Timothy O’Neill-Dunne: Okay. So let’s say you had found a cheaper price. Let’s say, for example, on an American airline, let’s just say Delta for the sake of argument. So you went Toronto, New York, New York, Heathrow, because it was a better price. That process of connection is actually quite complex because you would have to go through two forms of customs and immigration, things that you have done, I assume, several times before.
John Warrillow: Yeah.
Timothy O’Neill-Dunne: So what we have seen is that over the years, there has been a concentration of the big three alliances, that’s Sky Team, One World and Star Alliance, and those alliances have left some of the players outside of the loop. And so what we did was to look at, can we actually solve a macro problem, which is more efficient use of the air transportation networks by diverting traffic away from these concentrated pubs into less used airways which have spare capacity. And then to use technology, modern technology, open system technology, to build solutions that would let that be under the control of the person who sells the product. So we are more of an infrastructure play, but we power a number of different players to enable those sort of things to occur as opposed to having millions of folks sit there tweeting away on abacuses.
John Warrillow: Okay so if I’m a small regional airline… For example, there is a small regional airline here in Toronto called Porter, and they maybe have a dozen of different places they fly too. But a lot of people use Porter to connect to somewhere else. So an airline like that, I’m not-
Timothy O’Neill-Dunne: Like Boston or Washington D.C. or New York. So Porter has the Q400 planes-
John Warrillow: Yup.
Timothy O’Neill-Dunne: And people say, “Oh that’s great.” The problem for Porter is that they don’t easily connect to some because they are not a member of an alliance.
John Warrillow: Right.
Timothy O’Neill-Dunne: We have a similar situation, where I live, which is Seattle, with Alaska Airlines, not a member of an alliance, and they, therefore, need this connectivity. So we built a connectivity engine because when we looked at it, we said, “What’s the hardest problem that an airline has to solve?” And it’s building these type of connectivity engines. Whether you’re a big alliance, like the ones we just talked about…
Timothy O’Neill-Dunne: We actually helped to create an alliance in Asia, which is called The Value Alliance, and there are six airlines in that and it’s growing. And those carriers… So we’re looking at… We’re low cost carriers, we don’t have the ability to connect between carriers. But boy, if we’re in Thailand and we’ve got people who would like to go to the Philippines, and it’s kind of hard to do that if you don’t book on a regular full service carrier, could we make that easy and lower cost than some of the other carriers who can actually do that? But boy, we don’t know how to do it. We don’t have the technology, we don’t have the skill set. So we said, “Yeah, we can make that happen,” and that’s in fact what we did, and that was our family custom.
John Warrillow: Got it. Okay so I think I now get it at a high level. What was the business model like? How’d you make money?
Timothy O’Neill-Dunne: So we make money in a variety of different ways. You can do this through a license percent, where you license our software, but generally, airlines don’t understand that. Airlines are not terribly good at understanding how software works. So what they tend to say is, “Okay, what is the cost of the transaction?” And I always used to joke that it really is, what does it take to get somebody who stands at the mouth of the jetway or… I mean, there still… and how much did it cost to get them there? And how can we make that as low cost as possible? So these are called the transaction costs, and we use a per transaction model for most of our customers.
John Warrillow: Interesting. Well that’s fascinating. So, you pay… Alaska might pay you a little, tiny bit of every ticket they-
Timothy O’Neill-Dunne: Correct.
John Warrillow: They book using your back end platform.
John Warrillow: So that’s kind of risky I guess. Not risky, but if you’re confident in the product then it’s not terribly risky, but at the beginning it must have been fairly risky for you not knowing that the transaction model was going to work. How did you get your head around the idea of using a transaction model?
Timothy O’Neill-Dunne: Well first of all, I have a lot of grey hair, and it’s really understanding the business. So I have a lot of experience in this. I was on the start up team for Expedia and was responsible for setting up the international network for Expedia. And having basically worked in amongst airlines, from the marketing to the technology, over a good number of years, I kind of know how it works.
Timothy O’Neill-Dunne: My team was also very experienced in understanding the technology. My partner, Paul Addy, who is no longer with the company, he exited out when we finished the project. He and I worked together many times and we have delivered solutions to airlines and intermediary companies, be they travel agencies or search firms. So we come to know what the propensity of an airline, or one of these other companies, and what sort of levels that they know. So it does require a deep understanding because you have to speak a certain patois to these guys that they understand. You have to be able to understand it and then be able to explain it and airlines are very complicated beasts.
Timothy O’Neill-Dunne: They are also very focused on things like safety but if you look at where the customer sits in the hierarchy of an airline… Everybody says, “Yeah, the customer is the center of everything.” Politely, that’s a load of horse poo, because if we’re an airline, we’re not going to worry about the customer, if one guy is standing at the jetway and the plane’s got to take off. They’re going to take off. So operational efficiency is number two, right behind safety, and they two actually go together. So airlines are actually loathe to change and understanding that world and being able to speak that language, and understanding what they do, and designing products that work in that infrastructure, both from a legacy perspective but also how, today, people acquire and buy the products, such as you did when you went to London, those are… it’s quite a detailed skillset that you need to have, and fortunately, we had the right skills.
John Warrillow: Fantastic. So how did you guys, you and Paul, finance the business? Did you raise capital or-
Timothy O’Neill-Dunne: Oh, everybody always like to know the answer to that question. So basically, it came from three sources. I was the individual investor, so I took a lot of my personal, own individual wealth and funded a majority of activity. But we also were able to fund it using operational revenue. So we very early on were able to get revenue. So I think that is a critical thing that people need to know is how can you get that first customer in? How do you get that first customer to pay you? But the-
John Warrillow: Who was your first customer Timothy?
Timothy O’Neill-Dunne: My first customer was actually Changi Airport. So we solved a problem for Changi Airport because they realized that they had an operational problem that they needed to solve, and they needed some work. So we actually did some project work, which was the basis of how we got started. And I think that’s a critical thing that people have to understand is unless you got the sugar daddy, and to some extent I was the sugar daddy for the business, unless you have people who are prepared to do that, you really have to get something where you can turn revenue early in the cycle.
Timothy O’Neill-Dunne: People who go out there with business plans and say, “I’ve got a great idea, but I don’t know how I’m going to turn my first dime,” those are people who fail fast because there is no sustainability behind that.
Timothy O’Neill-Dunne: But let me get back to the question because there was a third source of funding that we had, and this is not always available to a lot of people, and that is public, government, incentive funding. Now most governments around the world actually do provide some sort of incentives to start up companies and we were very fortunate that one of our team is an expert in this area. So we went to the UK government and said, “Look, we have this great idea. We think that it would generate income for the company in the foreign markets.” Which obviously got their attention. So we started off by saying, one of the things that the UK government, who has various schemes for this, is actually called Innov8. I-N-N-O-V and the number 8. And Innov8 UK, is very good at helping to provide some of the seed funding and intermediary funding. So we were able to acquire some grants and some co-funding from them that enabled us to work early on in the business. And that really helped us to write the right business plan. But they also… It wasn’t just a question of funding, it was also a questions of some of the expertise they were able to give us. And we are very grateful to Her Majesty’s government for doing that, given Brexit is the problem of the day.
John Warrillow: There you go. So with the Innov8 capital, did that come in the form of debt or do they take an equity position in the business? Was it a grant? Like a gift? How did this… What was the structure?
Timothy O’Neill-Dunne: It was in two… We actually had multiple grants. I think in total we’ve had three, plus we’ve had some tax rebates as well. So the funding came in the form of grants or current investment. So when I put up some money, they put up a comparable amount. In UK and Europe, is somewhat interesting is that they don’t typically need to take a stake. So it is really an effective grant. It-
John Warrillow: Free money.
Timothy O’Neill-Dunne: It… Look, when government gives you money, it’s never free. Trust me.
John Warrillow: So how big did you get this business before you decided it was time to sell? I’d be curious… revenue? Or if you can’t share that, kind of number of full time employees? Just give a sense what the operation was in terms of size, when you decided it was time to exit?
Timothy O’Neill-Dunne: The first caveat I put on, was that it was not something we had decided that we would do. It wasn’t an overt thing, that we said, “Let’s go target somebody.” Which is a partially true statement because if you are entrepreneur, you must always keep an eye open for the opportunistic sale to come through the door, and that is ultimately what happened with us. But, the metrics that we were looking for was sort of numbers of customers, breath of product lines, plural, and obviously staffing. We tried very hard to run a very lean operation. So Paul and I, he took care of the development side, I was more product guy. So if you had a commercial in product and he had… I would say, the technical development side, but we both worked hand in glove, and could pinch hit through each other.
Timothy O’Neill-Dunne: At the end stage was… We were about 30-35 guys altogether. Now I think the current company, who just passed our first year anniversary, under the year, the guise of 777Partners, and I think the number has just exceeded fifty. But again, we took a very different approach from traditional companies. We looked very hard at what was the best way to build a core, and once we were comfortable with the core we could make that expand and contract, as business flowed, what we found was in general, that the ideal number was going to be around 40-45. We now are growing faster than that because we are going into different markets, both in the product side and both in geography. So I think that there was no overt decision that says at this point, when we reach this metric, this is when we are going to sell, we took this opportunity when it walked in the door and we felt it was a good fit and that’s proved to be the case during this past year.
John Warrillow: What was the trigger event? You mentioned the opportunity came to you. Maybe you can describe that?
Timothy O’Neill-Dunne: Yeah. So one of the things that is our happenstance situation, one of the things that I have done, and I still intend to carry on doing, is… We provide advice, some of which is compensated, and some of which is no longer compensated. But we were approached by an airline that was hoping to start up, and they said, “Look, we need some expertise as well as an IT platform.” And through a colleague of mine, we got a phone call that said, “Look, can you come meet us, we’re in Miami, let’s see if we can… You can help to solve a conundrum of what we want to do.” And it was during that dialogue with helping this airline, to get started, which hasn’t launched yet, that the investor realized there was a good opportunity. As it turned out, the push came from the investor in the airline who said, “Hey. We know that we can probably make more money with the IT side than we can out of the airline, but we are attracted to the aviation business as a whole.” And from that flowed a number of different things but that was genesis of the dialogue.
John Warrillow: So this was an investment company, like a private equity group? That was investing-
Timothy O’Neill-Dunne: Yes.
John Warrillow: In airlines?
Timothy O’Neill-Dunne: So I now sit inside the holding company. So we are a hold code, since in part this is a hold code. You can find us on the web at www.777part.com. Be careful because if you type it wrong you will get to an interesting site.
Timothy O’Neill-Dunne: The company has several verticals and they came out of a hedge fund business in New York and transfer down to Miami. And the two partners, emerging partners, Steve Pasko and Josh Wander, understand the value of money. They understand how to make money from money, so they are always on the look out for businesses that turn good cash potential. And obviously the aviation business is one where large numbers of transactions take place in a month. Cash flows through the system. They operate like a PE firm, but they are not constrained in the same way PE firms or VC firms are, this is a fund and you must use up your money. No, we operate in a different manner. So we have a far more flexible funding model which allows us to be far more opportunistic than most, I would say, PE or VC firms.
John Warrillow: Okay, so let’s go back to… You’re still running Air Black Box, you called in-
Timothy O’Neill-Dunne: Actually I have to correct you. No, I am not running the business. It was a very important part of the exit that I stop running the business, and I want to dive in to that, just a little bit if I may?
John Warrillow: Sure.
Timothy O’Neill-Dunne: We turned it over to one of my colleagues, Ian Reyner, who is now the CEO. So he sits in the UK and he is running the business and he is the CEO. My role has changed. I still have an innovation and product role inside the company because I will help it, I sit on the board, but I am no longer operationally responsible for inside the company. So just to be clear, no, I don’t have that role but obviously I care about my baby.
John Warrillow: Yeah. No, I get that. But I just want to go back to before the acquisition. To before you met 777Partners. What was you’re, at the time, I’m assuming, still involvde in the business on some level. Had you recruited Ian to run things at that time?
Timothy O’Neill-Dunne: Yes.
John Warrillow: Okay.
Timothy O’Neill-Dunne: Yes. I had recruited Ian to take over the commercial role because the role of operations, process, product, marketing, etc. was becoming too much for one person. And I had worked with Ian before in several other companies. He comes from, originally package goods, he worked at P&G, he worked at Sensure, and he had a good range of skills that I felt we needed in the company in the commercial role. I also was looking for somebody who ultimately would be the replacement CEO. One of the things that I’ve always tried to do in my personal career is do myself out of a job, and when Ian came along, he was the ideal candidate for us. We knew his temperament, we knew his skills, and so it was a good thing to bring him on board and we therefore… When we did bring him on board, we created a gang of four. So four of us ran the business, our other colleague is David Viss, who ran the creative, and some of the product design work and we therefore, ran it as a group. Pretty much as peers, which I think is something that is always very hard to do in cyber start up. But because we’ve known each other relatively for a long period of time, it was relatively easy.
John Warrillow: How did the conversation… I’m just trying to get into the mechanics of the conversation in Miami where 777 said, “Actually, hang on a minute, we don’t want to hire you to consult for us with this new airline, we actually kind of want to buy your company.” Did that come up over dinner? Did… Were you in the room? How does that change from we want to hire you to do a project for us to we want to buy your company?
Timothy O’Neill-Dunne: It actually came up almost just like that, there was… We were in the middle of a conversation, which I think was second or third conversation when, the investors had moved me outside of the room where the other conversation was taking place with the airline personnel, and out of the blue they said, “Look we are really interested in your business are you interested in selling?”
John Warrillow: What was your reaction?
Timothy O’Neill-Dunne: I think there was a very famous moment where you go, is this an oh-shit moment? Or is this a, are you kidding? Your mind will go through a bazillion things all at once, and I think I came up with a good enough stock answer that said, “Why not?” So the conversation progressed from there. Because I think… One of the things that certain, certain, certain realized was, and this came out afterwords, was it wasn’t just a question of them acquiring a company, they wanted to have some guys, if you like, on their team who had the expertise in the specs. And so if they were going to invest in the aviation sector, which is what they wanted to do, they wanted to have somebody on their side who had a broad understanding of the business, and they felt I could fulfill that role and that is part of what I do today. So it was not just a question about buying the business it was buying the skillset as well.
John Warrillow: Okay, so they made it clear from the beginning that they wanted you to stay on. That they didn’t want you to hand them the keys to the business and-
Timothy O’Neill-Dunne: Oh absolutely not. This leads to what was the deal price and what was the end result. I had no intention of walking away and saying, “Here you go, here’s the keys. You push those two buttons and then out pops, spits cash…” No, I felt there were two driving factors. The first one was, I felt this was a little premature in terms of time, I would like to have spent more time building the business. This opportunity came around which was something for us to be part of a larger whole, and I liked that idea that we could be with other people.
Timothy O’Neill-Dunne: We had danced with several other people, both on the brokerage and investment banker side, but also the direct funds in the past. But I think we felt, amongst us, that this was a good fit for us, that there was a capacity of capital to grow the business, which was something that we felt we could definitely take advantage of. But also that there was a longer term vision that they had not just around this individual part of business, but other businesses of a like ilk, which would then result in synergies and higher return revenue.
John Warrillow: So how did you value the company in your own mind? I mean before the conversation of price came up, had you guys, the four of you, did you have a sense of what the business is worth?
Timothy O’Neill-Dunne: Yes. In fact after… This is not the first approach that we’ve received. But after the first one, we’d actually gone out and spoken to some friends, because over the years Paul consulted with this company previously, I’d consulted to a number of companies in the past, who could give us some idea what the number is. And frankly, if I put my finger in the air, I wasn’t to bad at understanding what those numbers would be. So we came up with a valuation that we thought was realistic, a range obviously, and it seemed to match where 777 felt that they could value the business. So we kind of were in the right ball park.
John Warrillow: How did you come up with the number? What was the valuation techni?que
Timothy O’Neill-Dunne: Obviously, I can’t reveal that because it’s confidential, but the valuation was driven in part by basically three factors. There was a cash number we could have excepted, there was a commitment for long term investment, and then there was the issue with how the compensation would be paid out. So, one of the things that was very important to Paul and myself, was that the team that had been with us, particularly those who had been with us for a long period of time, we wanted to ensure that they had a say in it, and that they benefit from this. So we actually gave up, both Paul and myself, a significant chunk of the stock. We gave it to the employees, the loyal employees that had been with us, and that was something we insisted that those guys get the compensation for the sale took place.
John Warrillow: What’s significant on a percentage basis… Can you give me a ball park? Is it less than ten?
Timothy O’Neill-Dunne: Yeah, absolute- No. It was more than that. So essentially I had the controlling share at the time. So it was about a third of the company that we gave away.
John Warrillow: Why did you feel so passionate about that? I can play Devil’s advocate and say, “But Timothy you were the one who came up with the idea, you were the one with the industry expertise,” I mean… Why are you giving away a third of your company?
Timothy O’Neill-Dunne: It’s an interesting question. You could go through all the justification work, the altruistic whatever. But ultimately, for me it came down to, I felt it was the right thing to do. These are people who are incredibly loyal, they gave up time, way over and above what you would expect. And I think… You know I’ve experienced Silicon Valley, I’ve experienced, obviously, living in the Seattle area, what it’s like with tech firms here, and generally you find that there are two kinds of people. There are people who are vested and there are people who are not vested. The people who are vested are those people who will… you can call them up in the middle of the night and they will jump. I was incredibly fortunate all around, that the team that we had, the core team of people who had the skills and managed the uprise of the business, they were just that sort of person. And believe me, we burned through several people before we got to that core group. But this core group, of about twenty people, I would say were clearly well worth it, and I felt I had an obligation to them.
John Warrillow: Was there any sort of promise or inference, that, “Hey. When things work out, if we ever sell, you’ll participate.” Was there a promise made? Or was it… Do you know what I mean?
Timothy O’Neill-Dunne: There was a commitment made. So that commitment was not made on day one but over time, I felt it needed to be made because these guys were already doing far more than they needed too, and I felt that, even before we sold off, that we needed to give back.
John Warrillow: Got it. Okay. That’s helpful for sure. So to go back, you’re having this conversation with 777Partners and in your mind, you and your colleagues have come up with a valuation, I’m curious to know… and again, I understand we can’t talk about what that number was specifically, but I’d love to understand what you… what factors you contributed to your calculation. So where I am going with this is, what I’ve heard you say is that there was definitely some per… some transaction revenue you enjoyed. In particular, the product in Southeast Asia that you launched, so you had a billing model where there was transaction fees. It sounds like there was also some consulting that maybe was more project based and so in my mind, listeners would be curious to know, did you place the same valuation on the consulting revenue that you did on the transaction revenue? Was there a difference? How did you think about those sorts of things?
Timothy O’Neill-Dunne: So we didn’t really factor in the consulting piece.
John Warrillow: Okay.
Timothy O’Neill-Dunne: But so let me adjust your question to say-
John Warrillow: Sure.
Timothy O’Neill-Dunne: How did we come up with the valuation?
John Warrillow: Mm-hmm (affirmative).
Timothy O’Neill-Dunne: We valued in basically two areas. The result of the transactions on the potential marketplace that we could go after because we were an early player in that market. The second part is a result of that. It is the Yang part of the Yin piece. And that is the IP that we had created should be worth something. So one of the things that I had insisted we do was to codify the IP as early as possible.
Timothy O’Neill-Dunne: Well there’s always a question, do you… there’s swings and roundabouts when it comes to getting patents. Because in some cases, a patent can be restrictive. In other cases it can be hugely valuable. We believed that the concept behind what we call, which is our core product, which is called ACE, for the Air Connection Engine, of its ability to have a different mechanism for generating how airlines combine their products using techniques and capabilities far beyond what traditionally had been in place. We thought that that was new. So, one of the things I spent, personally, an awful lot of time doing, and believe me because it was expensive and time consuming, was the generation of our patent. And in February of 2017, we were granted that patent and it was made final last year. We have since extended that out and we are going to file more patents over some of our ideas. So the IP value as well as the transactional value became the two pillars of valuation.
John Warrillow: That’s helpful for sure. What exactly did you patent, when it comes to the ACE product? What was patentable? I think a lot of listeners will be like, “Yeah, I’d love to patent my process, my technology, my IP.” What did you learn… What specifically did you patent? And what did you learn about patenting ideas as a-
Timothy O’Neill-Dunne: Oh. We can have a whole separate podcast on the process of patents. I think what we came down to… The traditional ways of how airlines cooperate or airlines sell is driven by some very old legacy systems, and those legacy systems are largely controlled by just a handful of companies.
Timothy O’Neill-Dunne: What we felt we needed to do was to come up with a solution that could enable, essentially, the cross selling and the combined ability of almost anybody. So what we did was to build an engine and then proved it, cut short the whole process of the patent because obviously, like most people we filed a patent, we filed a bunch of claims, and the patent office initially thew it out, and they said because of the nature of the beast, we couldn’t possibly patent a process. We had to patent Core IP, that is Core Intellectual Property, that is a piece of technology, and that was something we were able to do.
Timothy O’Neill-Dunne: Not only could we talk about it in theory but we could demonstrate it in practice, and that was something that really attracted the examiner to us , and he said, “Okay. So you’ve created your theory and you’re showing it to me, that is actually very valuable.” And in fact, there is a very famous patent case, it’s called Alice, in the United States, which essentially invalidated many, many different patents over the issues of process. And a lot of people felt the process patents are the way to go, and we said, “No. We think, we needed to have some Core IP in there,” and that’s what we were able to do. So an airline connection engine, or the patents call it a travel connection engine, because it’s not specific to airlines, it can work with any type of product. That combination, capability, the algorithms, etc. that go with it, the processes. It’s how you make this work in an automated fashion was unique and nobody had ever done it before.
John Warrillow: Got it. So go back, you’re, in your mind you are valuing the company in these two pillars, the transactional revenue-
Timothy O’Neill-Dunne: Uh-huh (affirmative).
John Warrillow: It sounds like there, you’re not only valuing your existing transactional revenue, you’re also looking at the potential of the market and saying if we could capture more of this, there is a tremendous amount of transaction revenue. So it’s both sort of… You’re looking at your existing transactional revenue and the potential of that market?
Timothy O’Neill-Dunne: Yeah. I think to anybody who’s looking at selling your company or taking an inbound investment that’s always it. Everybody talks about a hockey stick, everybody talks about five year projections, we took a little bit more pragmatic approach and said, “This is what we think…” and you can imagine a grid, that is horizontal and vertical. In the horizontal side, it was could I get more customers and what would those customers generate? In the vertical side, it was can I actually sell more product through these channels that we’ve created or create more channels, and we felt that we could do that. And we are still proving that point, that yes, there are more customers that we can bring on board and yes, there are more types of customers in different areas so we continue to grow out horizontally. But vertically, we also had to drive business with more product which meant we had to continue to develop new capabilities inside the engine of being able to sell more stuff.
John Warrillow: Got it.
Timothy O’Neill-Dunne: I would love to tell you, if we could just finish up here, I always wanted to have our tag line, which is, “Connecting airlines to sell more stuff,” and that’s kind of what we did because the essence of what we do is about the connection. Our new tag line, from Air Black Box is, “Travel-dot-Connect.” And that is what we do, is that capability. And building, cross-linking capability of connection is a core of what we ended up doing and it’s something that’s of value to, right across the value chain, the airlines space.
John Warrillow: So I mean… What I’m hearing you say across these two variables or drivers of value is that in both cases, both the patent itself and that value of that, as well as the size of the transaction market. You are really valuing the company on the future vision, as opposed to what most of the people I talk to for this show, it’s a multiple of EBIDTA. Oh we wanted six times EBIDTA and they were offering four times, and we went back and forth on what multiple EBIDTA. What I’m hearing you say, and correct me if I’m wrong, is that you weren’t really valuing the company based on its existing financials it was really on this… I don’t want to say esoteric in a pejorative way, but it was more about what’s the potential of this product? What’s the potential of this-
Timothy O’Neill-Dunne: I think you forgot a key word there John which is, and that’s not unusual, in our space that’s called travel technology. Because it’s become very competitive, and I think a lot of this is driven from historical perspective, but there is so much legacy stuff still in existence that needs to get reformed. People who can rise above the parapet and demonstrate new technologies and new capabilities, they are the ones who are likely to drive valuation driven from potential rather than actual so-
John Warrillow: It’s very, it’s still very vague. How do you… Are you doing… Is there a spreadsheet somewhere on your desktop that you pull up and say well if we could just get 3% of the transaction volume of the third tier airlines in AsiaPac that’s 16 million dollars of revenue and we want three times the… is there some spreadsheet or is it-
Timothy O’Neill-Dunne: Yes there is.
John Warrillow: Is it all just what its-
Timothy O’Neill-Dunne: The spreadsheet had two major tabs. One was the IP value and the other one was this transaction expansion, as I said, driven horizontal or vertical?
John Warrillow: Okay so I think I understand how you would have done some transactions, because you could have estimated the value, the volume of transactions and figure… So I get that. But how do you put a price on the IP?
Timothy O’Neill-Dunne: So that’s what’s difficult. In fact there are people who do that sort of job professionally. So you can go to IP evaluation firms. There is-
John Warrillow: They are sort of just making up aren’t they? Really? I mean are they actually putting-
Timothy O’Neill-Dunne: Not necessarily. There’s always two values to IP. One is the value of something that you could defend yourself in order to upgrade to your space, in other words, to isolate your space, so you’re not threatened externally. And the other one is, who could you go after and say that they are infringing on your patent. Please understand I’m not advocating that, but it is something that when IP has been valued, the valuation is driven by those two metrics.
John Warrillow: Interesting.
Timothy O’Neill-Dunne: That is, what you can protect yourself so you don’t have other people bash on your door and how you can be aggressive if you do. So there’s…. Nathan Myhrvold is famous for his particular way of being a patent troll. I really don’t want us to be a patent troll but they make a lot of money out of patents that other people use and you occasionally hear of different things. I mean the example I always like to use is an iPhone, and the Android vs. iPhone battle. In each device there are over 5,000 patents that apply to the devices and probably seem… Google was never involved in the fight with Apple but Samsung was and a lot of that had to do with, did you copy me? Did you do this? Did you do that? So the world of IP and IP valuation has not been something, in the past, that existed in the aviation and travel world very deeply. Amadeus is the largest provider inside our space, has been filing a large number of patents, and I guess a lot of them push back because they just in front of you, corner the market in IP.
Timothy O’Neill-Dunne: When we went at this, we felt there was a clear, definable, white space that we could go after, and we could protect, and we need to protect it. And inside 777 we have a very good team of lawyers, who are also focused on ensuring that the companies are in fact protected.
John Warrillow: What does it cost to patent an idea?
Timothy O’Neill-Dunne: You can spend years doing this. I would say there was… It can be as low as a few thousand, it can be as high as millions. You know, if you are trying to develop somethings, fortunately at the end, in the area of IP, where we are based in Manchester, one of the things that I do is to ensure that we were based near a center of learning so that we could have the interchange between academia and our group. And we got a lot of support from the University of Manchester, in this area. They told a story of a piece of IP that was being developed in the pharmaceutical area that went all the way though to stage three trials and was about to go into stage four when it started to come apart, and they had to abandon it. And they had upwards, some very large number, I think it was nearly a billion Euros worth of investment tied up in this, that eventually they had to give back to their investors because they were not able to execute and reach the end level.
Timothy O’Neill-Dunne: So IP can be very simple and easy to do, but I would strongly suggest… Don’t expect to file yourself. Fill out the form, go in there and do it. More necessary you should look at… You know those guys that say, “Yeah, patent my idea and you can make a bazillion dollars.” No. You have to spend time to go find a good patent attorney to work with you. Then you have to file appropriately, not just in one jurisdiction but lots of jurisdictions, and you have to find a way to be able to protect it, and be assured that that is not an inexpensive proposition.
John Warrillow: I’d imagine. So let’s go back to the transaction itself. The value that 777Partners was seeing, they clearly saw, both sides of the equation. Did they… When they looked at you, did they… Was it the patent that they valued more than the transaction volume and the potential of the transaction volume? Did they… Were they equally interested in both? Was there a strong lead? That’s a thesis’s they said?
Timothy O’Neill-Dunne: I think they were more interested in the transaction and the potential and the IP potential, because that… The IP side is far more speculative.
John Warrillow: Yup.
Timothy O’Neill-Dunne: And harder to value as you pointed out earlier. So as a result that was corresponding discounted or dealt with accordingly.
John Warrillow: Got it. So again, if I’m getting into territory you can’t reveal, I totally understand, but I think people would be curious to know when it comes to the proportions of the deal, and again, you mentioned there were three… There was a cash at closing, there was a long term, presumably, play, an earn out, I don’t know how it was structured but some sort of long term payment, and then there was the payment that you provided to employees. Are you able to share at all… Is there proportions? Again I…. Is it the majority cash, were you thin on cash and long on, future? What… How did you guys get there?
Timothy O’Neill-Dunne: I think I would prefer not to give a direct answer, but let me just explain it in a little bit of this. What we wanted to have happen was that the deal would stand on it’s own. So that if I had decided to hand over the keys, that would have been a done deal. But there is this long term side of… What I am doing now is working inside of 777, and we are looking to expand the portfolio. Not just, my boss is one company investor and we are the company in that vertical, is that we are actively looking at others. So I spend a goodly part of my day now, so I am actually now a full time employee of 777 working inside the body corporate for this goal.
Timothy O’Neill-Dunne: I think the business itself, we did want it to stand alone. We did want it to have, I would say, a fair way of being valued separate from return, would be such that whatever happened, in my view, and this was a personal view, was that the team they got their money no matter what. And the speculative party that would be based upon… Again, some control that I might have, or stimulation I could bring to the business, to continue to keep it going, and that is still an obligation that I have. And I am glad to say that I think it does work because we have still been able to grow the business as a result of my direct, and support for that business.
John Warrillow: Fantastic, and it’s a great segue into my last question. Where do people reach you? Because I imagine their going to…. their probably people that maybe, potentially, interested in having a conversation with 777 or just seek out your advice, generally. Do you do connections on LinkedIn? What’s the best way for people-
Timothy O’Neill-Dunne: You can find me on LinkedIn. Just make sure you spell my name right, otherwise you get nothing, and I do have a weird name. So just make sure that happens.
John Warrillow: And we will put that in the show notes, so you’ve got that if you want, they’ll be at BuilttoSell.com.
Timothy O’Neill-Dunne: You can find me at, if you just go into the 777Partners website, as I said www777part.com. You can find me under the operational teams, and you can see who we are, one of the three guys there. But let me give you perhaps a philosophy here.
John Warrillow: Please.
Timothy O’Neill-Dunne: I was very fortunate in being able to start a company. I got a wealth of experience that comes from many years of consulting, many years of working inside different corporations. I have kind of… One of the few people who have a good, 360 view of the travel business from technology to cell. And I have a personal philosophy that I would like to give back, and I’ve done a fair amount of mentoring over the past years since I left Microsoft, and I am always open. Typically, when I do a scale, I will get somewhere around, 100 propositions across my desk, every year. And if even I say no, I will give positive feedback to the people to say, “Hey, this is what you need to know and here’s a buyer here, that I can send you to, that you should go talk to.” Because I think that’s part of the problem existing in any sector whatsoever. Is how do you get connected? You got this great idea that burns in your soul, that you think you can solve it. And you go, “How do I get connected into that space when I don’t really have a footprint?” And we found-
John Warrillow: It sounds like you’re willing to be that for folks.
Timothy O’Neill-Dunne: I am more than prepared to help through that process. If it’s a great idea, I mean, we get great ideas and we explore them. We do have an investment team at 777 and we are currently evaluating, I think in the short list there’s about four or five of them at any one time, and we will make some investments. Some which will become public, some of which won’t be. But we have a definite vision of where we are going and just again, from our investment pieces, we’re looking more at infrastructure rather than people who got that fabulous idea that their certain is going to be virally as big as Gwyneth Paltrow’s Goop or the Kardashians.
John Warrillow: Okay.
Timothy O’Neill-Dunne: Because that’s coming the more we think about it.
John Warrillow: Fantastic so Timothy O’Neill-Dunne on LinkedIn we will put it in the show notes. Timothy, thanks for joining us.
Timothy O’Neill-Dunne: My pleasure John and best of luck to all of you out there.