Dominik Brichta: IP is not an annex to the contract. This is why the company is bought.
You have up to three professional identities — lawyer, consultant and entrepreneur.
Yes, and it connects very naturally. M&A is the closest thing to me because I've lived it myself. When you advise a client on the sale of a business, you bear professional responsibility. When you sell your own business, you also carry a personal one.
In 16 years of business, I have bought and sold dozens of brands. We sold one of them, the Klarstein brand, to American investors: first the investment group Bain Capital joined, later we closed the process with the sale of HPS, which is part of the BlackRock group.
And after this success, my partner Pete Both and I did not bother with e-commerce, on the contrary, we bought a smaller e-commerce brand in the USA. It's a completely different story, a different market dynamics and a different type of transaction. I am very happy to talk about this experience in more detail at the second edition of the Protect & Grow conference in November.
With each transaction, I realized one thing: IP is not a formality. This is why the brand is bought.
Let's go back to the beginning. How did your business story come about?
We started with the aforementioned friend and associate Pete Both while studying law in Vienna. It was 2008 and e-commerce was in its infancy. Our first e-shop was called elektrovyhodne.sk, today I would say that naming was not our strong point. We didn't know Miša Pasteur from GoBigname yet.
We started in the garage with my parents. No investors, no financing from the bank. But very quickly we understood the fundamental thing: if you offer a brand that, although no one knows, has a beautiful design and costs half the price of premium brands, people will buy it.
In 2012, we entered into a joint venture with a successful German seller on Amazon and eBay. E-shop Electronic Star was created and we began to expand into CEE — Hungary, Czech Republic, Croatia, Slovenia, Bulgaria, Romania, Poland. Bratislava has become the center of the CEE region.
When has the moment come that it is not enough to be a reseller?
Once we understand that there are thousands of e-shops and if you are just a reseller, it's a margin game. The real way out is your own brand.
From Electronic Star, Klarstein was born, a brand of a wide category of kitchen appliances. We started to develop products ourselves, build design, brand, customer experience.
In order to grow faster, we started buying brands. In 2019—2020, we bought more than 30, mostly smaller, successful niche brands on Amazon or eBay. Some we have integrated, some left alone, others sold or closed.
In 2021, Klarstein had a global turnover of around 400 million euros and 1,200 employees.
What do you think constitutes the true value of the company today?
Today, warehouses and production halls no longer win. IP wins.
This is the reality of the digital economy. The most valuable assets are intangible.
IP today is often a stronger value than physical infrastructure. And this dramatically changes the view of transactions.
You argue that IP is not just registrable rights. What do you mean by that?
In addition to trademarks, patents or designs, there is a huge group of what I call “hybrid rights.”
They are registered somewhere, but their transfer depends on the consent of third parties or the terms of the contract. Typically, these are:
- social media accounts used for commercial purposes
- sales accounts on Amazon,
- Amazon Brand Registry,
- customer reviews.
If your business is built on product brand and marketplace sales, an Amazon account is often a core asset. Reviews keep you alive under the pressure of the competition. And the marketplace can shut you down overnight if you suspect manipulation.
All this must be understood by the consultant in the transaction - not only legally, but also procedurally.
Why are digital assets so sensitive to transactions?
Many transactions in this area are asset deals. Imagine a small Slovak company strong in online. An American investor comes in, and he doesn't want a firm from a jurisdiction he doesn't know. He wants digital assets.
And digital assets must be transferable.
If they are not, you have a problem.
What does this mean for advisors?
First of all: IP is the core asset. Not an annex to the contract.
Secondly: IP is not only registrable rights, but also unregistrable and hybrid rights.
Third: IP due diligence must be as important as legal, tax or financial due diligence.
IP is often a last minute problem. Everything is agreed, the valuation is set, but suddenly it turns out that the code belongs to the programmer, the domain is written to the founder's wife or the data is stored on a private Google Drive.
Then fragile structures are quickly formed, which can crumble.
What about investors?
IP status is an indicator of the quality of management.
Orange flags can be fixed. Red flags are not always.
Impure IP means discount on valuation or deferred closing. IP maturity of a company is an investment criterion.
What would you tell founders and managers?
The prevailing opinion is that IP is an unnecessary legal burden. This is a mistake.
Look at Apple. Successful global businesses don't just have IP protection, but an entire IP strategy.
IP is not law or compliance. It is part of R&D, product development and business strategy.
IP protection falls within the innovation budget, not among the legal costs.
IP strategy is a manifestation of the quality of leadership.
Timely IP protection protects both valuation and control over the company.
IP is what makes an idea an asset.
And companies that understand this today will buy others in five years. And about what the purchase of the brand in the USA looks like today, what IP specifics the American market brings and what you need to watch out for, we will talk in detail at the second edition of the Protect & Grow conference in November.