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Innovating via consortia

Risks and opportunities from the GC’s perspective

There are various investment models through which large corporates can structure their involvement in new tech ventures, such as incubation, commercial co-operation, minority investment, or acquisition.

Here we look at putting together a consortium with other corporations in order to pursue a new tech venture based on our recent experiences advising a consortium of banks to set up a new “utility settlement coin” digital currency for settling and clearing financial transactions over blockchain, and advising another consortium of banks and industry players to launch the komgo blockchain platform to transform commodities trade finance.

Explore the key issues below and download the report to view a comparison of the major routes, including consortia.

 

Issues to address

When forming a consortium, corporations will have several categories of issues to address and several additional issues that have board-level  importance that may well be comparatively new territory for those individuals working on or in the consortium.
1

Funding

Questions as to how the funding requirements of technological development, roll-out and management of the consortium will be shared, as well as how any assets (especially intellectual property) that are contributed to the consortium by its members will be compensated for and protected.

2

Strategic and business planning

Being aware as to what technologies to use, the business model to be adopted, the development and roll-out plan, and so on.

3

Consortium membership

How to put together the right mix of members – for example, determining the appropriate mix and balance of geographic exposures, customer knowledge, and knowhow; ensuring that the consortium has enough members in it to drive industry norms, while mitigating against “free-rider” behaviour; and the like.

4

Governance

How to resolve situations where there is disagreement between members (or between members and the consortium itself), or how investment (whether funding or time or expertise) is related to decision-making and project milestones.

5

Antitrust issues

Antitrust regulators can be cautious about consortia and joint ventures, particularly because of the information-sharing that takes place within them and because of the potential for these consortia to dictate industry behaviour and standards (and hence competition) where they involve a large number of major participants.

GCs and legal counsel can add significant value to consortia by mitigating against this risk – for example, when assisting komgo Linklaters helped to ensure that adequate barriers and firewalls were implemented in order to block or channel information flows, both between members of the consortium, and between consortium members and the operating entity itself during the establishment and operational phases of the joint venture.

6

Financial regulation issues

Consortia often transcend any one particular industry sub-sector. For example, our recent work on komgo involved a consortium that included energy groups and banks. This multi-sector participation may be a risk for fintech ventures given that across the consortiumthere will be varying levels of understanding of the regulatory risks and requirements in relation to the provision of financial services.

It is imperative that these risks are understood across the consortium to minimise the risk of any member breaching financial regulations – or indeed the operating entity itself, especially if its management team comes from consortium members with less knowledge of financial regulation.

7

Data issues (especially GDPR)

Privacy is an increasingly important issue from a political, regulatory and customer perspective. The importance of managing this issue from a GC and board-level perspective can be seen from the recent introduction of GDPR in Europe, under which fines can go up to 4% of global turnover.

This may be a particular risk if the consortium includes large companies (with the resources to have implemented appropriate measures to ensure GDPR compliance) working with young or start-up tech companies (who may not have the institutional knowledge, or the resources, to have adequately prepared for the GDPR implications of the joint venture).

Explore the report

Read the full article and explore why you should consider the consortium route.

Download the full Innovating via consortia PDF