CONCEPT

Kentron encourages and empowers a culture of innovation in client companies in a way that is beneficial to both the company and its employees. Kentron achieves this by providing a unique innovation architecture that enables a client company’s employees to take their ideas and turn them into reality. Kentron acts as an incubator for a new idea until the development of that idea is sufficiently mature that it can be pursued without the support of Kentron, typically as an independent company.

The nuts and bolts of Kentron’s modus operandi are described in the Kentron Shareholder agreement and Company Constitution, which define the rules by which participants are required to participate, as well as the provisions for the protection of Intellectual Property (IP).

Where do we start? First, Kentron signs a contract with the client organisation tailored to meet the specific goals and modus operandi of that organisation, as codified in the terms and conditions of the contract.

Kentron then creates a bespoke ‘innovation sandpit’ tailored to function in a way that meets the specific needs of the client. Every Kentron client has their own innovation sandpit and each sandpit operates completely independently of, and without knowledge of, all other sandpits. An in-house web-based platform provides an end-to-end management tool that underlies all operations of a Kentron sandpit, including the management of finances for each project, permissions for project spending, allocation of Conversion Notes (see below), etc.. Kentron maintains a separate single bank account for each sandpit. Projects within that sandpit then have virtual accounts which aggregate into that single bank account. Fund allocations to individual projects are managed through the Kentron platform. In addition to the management platform, every sandpit is provided with a wiki-based front end that is visible to only participants from the client organisation.

The existence of a sandpit for a client company is kept confidential. Kentron sandpits encourage collaboration across the client organisation, where participants with diverse skills apply those skills to one, or a range, of projects. Each sandpit is overseen by a Sandpit Manager.

Client company employees then initiate projects in the sandpit. A project is a self-contained idea that has a clear line-of-sight to a commercialisable project or service. Initiation of a project in a sandpit requires:

• Identification of the Project Leader who is primarily responsible for seeing the idea to fruition.

• A description of the idea. This is typically on the scale of 1-2 pages but should be sufficient to describe the IP in a way that its provenance is clear.

• A financial evaluation of that idea.

Kentron recognizes the value of sandpit participants initiating innovative ideas and participants contributing time and/or funds to realise those ideas. This recognition is in the form of Conversion Notes which translate into a pro-rata shareholding in any later spin-off company and, in the interim, the distribution of any income accruing from the operation of the project in the Kentron sandpit. Conversion Notes issued to participants in a Kentron project, are bound to that project and apply exclusively to that project.

There are two types of Conversion Notes:

• Type 1: These are issued to Project Leaders and to those making a financial investment in the project.

• Type 2: These are issued to project participants in recognition of investment of their time in advancing the project objectives.

Type 1 and 2 Conversion Notes are treated identically for the purposes of project profit distribution and allocation of shareholdings in any spin-off company. However, only Type 1 Conversion Notes holders form the Project Leadership team and have voting rights on decisions relating to the project.

If a project makes a profit in any given year (income minus expense), a portion, which is determined by the Project Leadership Team, but at a minimum of 20%, is paid to the Conversion Note holders, and to Kentron, as a management fee.

Kentron acts as an incubator for a new idea until the development of that idea is sufficiently mature that it can be pursued without Kentron’s support e.g. as a branch of the client company, as an independent company, or as a joint venture. The nature of the transition from a project in a Kentron-managed sandpit to an independent entity, including the conditions under which a project may be considered sufficiently mature to exit its sandpit, is specified in the contract between Kentron and the client organisation. Triggering this transition follows close consultation with the Project Leadership Team. The translation of the Conversion Notes held in a project to shareholdings in the new entity (e.g. company branch, independent company, joint venture), and the transfer of any cash-in-hand held by the project to the new company, is managed through a Sale and Purchase agreement between Kentron and the new entity.