Turning Failure Into Success
Try to put a price on an idea especially one thats a market reject.
Thats what start-up Website Recycling wants to do, as it operates what may be the first sophisticated market for technology and intellectual property left in the wake of the dot-com bust.
A joint venture of two Boston firms Gordon Brothers Group, which liquidated $5 billion worth of assets last year, and The Screen House, a Web development firm the idea for Website Recycling came from Gordon Brothers work liquidating failed dot-com assets.
"In these dot-coms going under there were expensive assets, stuff worth tens of millions of dollars, that were getting no bids," said Gage Andrews, president of Website Recycling. "It almost didnt seem there was a way to sell them."
Website Recycling isnt the first to sell intellectual property Bid4Assets auctions off unused domain names but it is the first to assess the quality of the technology it sells. That works for one turnaround consultant, who referred CyberSites to Website Recycling.
"We felt they had a good system in place to keep the lights on at no cost to my client," said Tom Herman, chief technology officer at Recognition Group in New York. That dramatically improves the chances of reaching a deal, he said.
Website Recycling agreed to host the CyberSites technology while it seeks a buyer.
"If someone cant look at it and understand what it does, then its difficult to convince them that it has value," Herman said.
Starting with a bankruptcy idea, Website Recycling has also found a market for selling or licensing the technology of healthy companies, Andrews said. Buyers simply want cheaper ways to add technology than building it themselves. Website Recycling said its offerings can save buyers 15 percent to 50 percent over standard development costs.
Currently, Website Recycling is hawking four technologies on its site, three of which are from "distressed" companies. The 30-day-old company has yet to close a deal, but Andrews said it is close. The main challenge is how well it prices the technologies that werent able to survive in their chosen markets.
"The difficulty is in valuation," said Paul Hammer, vice president at the Washington, D.C., office of Houlihan Lokey Howard & Zukin, a private equity firm that arranges many technology and company sales. "Its dependent more on the user than the owner," he said. The user has to value the intellectual property.
Herman agreed this is the issue, but for a different reason. "Its challenging to get rid of assets in a value thats worthwhile," he said. "Its really hard to take custom-designed technology and apply it to a third-party business."