It may be true that billions of rands worth of intellectual property lie buried in the seams of South African academia, but extracting it is an endeavour worthy of the talents of the most hardy prospectors, as entrepreneurs Irshad Khan and Ali Brey have found out in the past few years.
Inventing is the easy part, says Khan, an electrical engineer. His work at the Cape Town University of Technology and later the University of Cape Town produced a remarkable table-top platinum smelter that is taking the jewellery industry by storm—well, what’s left of the jewellery industry after the global economic meltdown.
Cyclical fluctuations of industry way beyond their control is just one of the many obstacles that makes taking an invention to market much harder than the inventing itself, even for a product as nifty as their miniature induction furnace.
Plugged into an ordinary domestic single-phase socket, the furnace can melt 250g of platinum at the requisite 1 800°C within a few minutes.
It uses the latest induction technology, by which metal is melted through a high-frequency magnetic field that causes an electrical current and therefore heat in the metal itself.
Only large-scale industry has been able to benefit from the highly controllable and energy-efficient technology so far.
Hot Platinum’s furnace makes the method accessible to almost any jeweller who, up to now, has typically used a blowtorch to melt platinum—a slower, more wasteful and dangerous method. Hot Platinum’s patented edge actually lies in the furnace’s casting method.
Using an ingenious system of dropping and tilting the melting pot so that the liquid platinum falls consistently in exactly the right spot into a centrifugal spin-casting unit, Khan and Brey’s invention allows a jeweller to cast rings at a quantity and quality previously achieved only by large producers.
With such a clear value proposition and protected by patents, why the struggle?
It starts with the very act of patenting, which theoretically protects the intellectual property, but focuses the attention of a highly competitive industry not only on the innovation, but also on the market gap that it aims to fill, says Brey, an electrical engineer who joined forces with Khan after he developed an interest during a master’s of business administration course in the commercialisation of intellectual property.
In its infancy, the project had won a R5.6-million grant from the government’s innovation fund to develop a marketable prototype over three years, but the gap in the market was closing so quickly that they decided to squeeze the development into two years.
But the grant paid only for the development of the prototype. No local venture capitalist was willing to invest in an unproven concept, promising prototype or not, so the pair set about ‘bootstrapping’’ the launch of the furnace into the market.
They found what Khan calls ‘tame clients’’ who were willing to put down the deposit that paid for the construction of the machines and to tolerate the adjustments and ironing out of kinks that inevitably goes with moving from prototype to fully commercialised product.
As difficult as it was, the lack of early-stage venture capital was actually a blessing, says Brey.
Having proved their concept in the market, they could negotiate second-round funding with Brimstone, the JSElisted BEE investment company, while keeping majority shareholding, says Brey.
Brimstone is a valuable partner because of its clout and resources. The fact that Hot Platinum pays royalties to the University of Cape Town as the patent holder adds gravitas to their product, says Brey, but the slow process of dealing with the two institutions was frustrating in the race to commercialise.
The licensing process and the nine months it took for the finance to come through seemed like a lifetime in the highly competitive market.
Adding to the frustration was the lack of networks between industry and South African technological research.
Hot Platinum didn’t know where to start pushing the finished product on the market. In contrast, in the developed world, commercialised intellectual property practically gets snapped up by industry.
Eventually, the economic tide turned just as they were casting their net, and Hot Platinum’s ability to quickly adapt their technological know-how to niches in the market less affected by the recession proved just as valuable as the intellectual property that launched their business.
Despite the recession, Hot Platinum’s turnover has doubled every year for the past four years, says Brey.
Using many of the same technological combinations as in their platinum furnace, they developed a desktop gold melter that fills a niche in the Indian gold market, for example.
The passing on of gold jewellery from one generation to the next is an important part of Indian wedding culture and Hot Platinum’s compact machine allows a gold retailer to melt down a client’s gold and prove its purity on the spot, instead of sending it away and inviting accusations of dilution with other metals in the process.
But again the stormy waters of international trade allow for little plain sailing.
The Indian government slapped a 40% duty on the importation of the machines, pricing it out of the lucrative market and forcing Hot Platinum to consider selling components of the machine to Indian firms rather than the whole machine.
Fluctuations in the value of the rand also play havoc with a small company trying to break into international markets.
Brey and Khan had to learn the intricate game of keeping revenue earned in foreign currency to buy components for their machines, but such hedging does not help against the rand’s wildest swings.
Meanwhile, Hot Platinum has become increasingly adept at induction melting, building a machine or a South African client that can induce a temperature of 2 500°C in a minute using four times less power than the closest competitor.
Rather than patent them, their new techniques are ‘internally protected’‘, meaning that it is designed to be very difficult to reverse engineer.
Patenting exposes the know-how to the market, says Brey.
Many operators will infringe the patent, based on the correct calculation that Hot Platinum does not have the resources to protect the patent through lengthy dollar-based court cases.
Hot Platinum is now using its edge in energy efficiency to build larger machines for local mining and metals industry, replacing wasteful and dangerous blast furnaces with their compact, automated and userfriendly units.
Khan believes that one of the ways they are able to overcome South Africa’s image as a technological backwater at international trade shows is through the large amounts of effort they put into their furnaces’ intuitive, user-friendly control panels.
‘That is what South Africans are good at doing,’’ he says.
The development of their jewellery furnace also taught them the value of good industrial design.
They found jewellers tend to place Hot Platinum’s professionally designed machine in the shopfront to impress clients instead of in the back workshop.
Brey and Khan apply the same design principles in even their largest machines, giving them a sleek, finished look.
With all the difficulties they face in South Africa, don’t they sometimes think of relocating somewhere closer to the centre of the technological world?
Certain things such as marketing networks would certainly be easier, they say. But the recession seems to have wiped out the major advantage of ubiquitous finance.
Khan says he’s heard from fellow engineers that even US venture capitalists are now financing South African- style—proof that the product sells first, then we’ll invest.
Besides, says Khan, there is a subtle advantage to developing new technology in an unknown corner of the world instead of in the overcrowded First World where everyone keeps looking over everyone else’s shoulders.
From here, you’re able to spring a surprise on the market.