A South African IP Strategy for securing international investment
About IP Strategy
How it Works
This International IP Strategy has been devised for South African technology-based companies to secure funding from international investors. The strategy explains how these South African companies can set up offshore companies to create and own their IP, to facilitate those investments. We call these technology-based companies “High Growth” companies because in many instances they may be more mature than early stage “Start Ups”.
By implementing the IP Strategy, High Growth Companies are empowered to grow their group value offshore in hard currency. The High Growth companies’ “hard currency” value will be located in the offshore jurisdiction which supports their funding strategy and, ultimately, their exit.
The need for the IP Strategy is twofold. Firstly, South African Exchange Controls prohibit the movement of all capital out of South Africa. This is an oversimplification of the situation, but the clear reality is that High Growth Companies can’t move their IP offshore without jumping through demanding local hoops created by Exchange Controls. Even if they go through the demanding application process, High Growth companies face a real prospect of being refused permission to offshore their IP. The mere risk of refusal by the SARB has had a powerfully negative effect on international investment into South African High Growth companies.
Therefore, this IP Strategy is designed to assist High Growth companies to create their IP offshore, outside of the jurisdiction of Exchange Controls. High Growth companies are shown the path to creating their offshore IP holding company, which can then raise funding from those investors who are hesitant to invest directly into South Africa.
Why was this resource open-sourced?
Industry experience shows that over 90% of all venture capital funding into High Growth companies is sourced from offshore. This is despite long lead times, complex legal structures, and challenging regulatory risks. Legal, tax and financial advice and structures seem to be getting ever more complicated and expensive. High Growth companies (and even many investors and lawyers) struggle to understand the diverse structuring solutions proposed by different participants in the industry. Consequently, less High Growth companies can afford or implement the proposed structures.
So, our goal is to standardize the process by which a High Growth company can close funding from international investors. The big picture is to create a framework which will allow more funding transactions to happen, faster. We are resolute in our belief that increased funding to these companies will allow the South African tech industry to grow significantly.
The fundamental principles of the IP Strategy are derived from Dommisse Attorney’s work with hundreds of High Growth clients over the last 15 years. This strategy distils and applies principles of International Tax (the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations), South African tax and Exchange Controls. Much credit must also go the SA Start Up Act Movement (of which both Dommisse Attorneys and the SA SME Fund are active supporters), for their ongoing engagement with the SARB to create more practical solutions for international structures for High Growth Companies.
Content
What we do
Mapped Strategy
We have mapped this strategy against South African IP laws, Exchange Controls, and also the fundamental requirements of international tax.
Maximize the “Real Life” Practical Value
Finally, to maximize the “real life” practical value of this strategy, we have also explained the offshore ownership structures which are typically used by High Growth companies, and provided a few high value resources for putting those structures in place.
Practical “Resourcing Guide” & Template
Over and above that, we have suggested a practical “resourcing” guide and template. This helps the High Growth company to identify the critical human functions that need to be located in their target jurisdiction.
Once those human resources are located offshore, and are performing IP creation functions, the offshore company may claim original ownership of IP created there, from that point on.
Not Advice
Beware, on its own, this IP Strategy is not legal advice, tax advice or financial advice and every user should take care to seek their own advice before applying the principles described here. By using this website you acknowledge that you have no rights or claims against (and you waive all rights or claims against) the team of entities that created it (including the SA SME Fund, Dommisse Attorneys Inc., SAVCA or any other contributing party). Feel free to reach out to Dommisse Attorneys for guidance.
