The benefits of a joint venture

Even Simon Cowell and Sir Philip Green are seeing the benefits of a joint venture.

Quite simply, joint ventures (JVs) are on the rise because it makes sense to scale up quickly and boost sales. JVs are contractual agreements joining together two or more parties for the purpose of a particular business undertaking, with the parties agreeing to share in the profits and losses of the enterprise.

Kevin McDaid, the MD of Challenger Interactive Technologies, is currently working on a JV with wireless company Trapeze Networks to make WiFi-enabled “interactive seats”.

‘We were looking for partners we could trust and who were experts in their field. It wasn’t a financial decision [to save money], but rather because we were wanting to be first to market.

‘There were some parts involved in the product that we would never have been able to build from scratch – such as the WiFi aspect,’ he says. ‘The key things that we were looking for were expertise, stability and longevity of relationships.’

McDaid also intends to embark on other JVs when expanding the product out to Europe and the US. ‘We will be looking for new partners in those countries who are well placed to launch the product there,’ he adds.

For Helen Trim, COO at software company FreshNetworks, undergoing a joint venture with advertising agency Karmarama to form online company K-Networks was a way to speedily build a market presence.

Says Trim: ‘It also means that we have a lower cost of sales as we are using the customer base that Karmarama already had.
We identify an opportunity through that client base and then jointly present [to the clients] with them.’

Setting out the parameters of the JV and managing expectations was vital. ‘We made sure we met plenty of times beforehand and even did a few pitches together before undertaking the JV. The legal framework followed,’ she adds.

Legal considerations

Phil Riman, partner at law firm White & Black, says: ‘If a company is worth less than £1 million, then the fees involved in undertaking a JV are likely to be too high to make it worthwhile.’

Riman adds, ‘My main advice is to scenario-plan. Think about every possibility, such as what will happen if the other party becomes insolvent, or what you will do if the venture suddenly grows like crazy and you reach a black hole in funding.

‘Doing so is a really healthy and much under-appreciated part of the process.’

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