How many times have you made payments/investments for promised results which never happened? Well, I have made that mistake a few times over the last 2 decades, and each time, the learning has improved. And the success rate of deals has also improved.
There are professionals of all types – who will ask for upfront money – and then you are stuck. It happens in every possible industry. It is very common and we see many cases regularly. And hence this post to share this valuable learning with you.
Whether it is a simple project, or a real estate, or a business, or anything else – if you are planning to spend/invest money on it – please make sure that there is a payment schedule that is tied to milestones, mutually agreed between you and the other party.
Here’s an example of Milestone Based Payments – it ensures that the other party will continue to work for the results. It looks logical when we read it here, but it is often missing in real life deals, or it is not tightly defined.
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Novartis buys drug firm Protez for $400m
ZURICH, 5 June 2008: Novartis has bought US-based Protez Pharmaceuticals in a deal worth up to $400 million, giving it rights to an antibiotic which could be used to fight superbugs such as MRSA, the Swiss drugmaker said.
“The acquisition of Protez Pharmaceuticals provides rights to PZ-601 and further strengthens specialty medicines development portfolio in hospital infections,” Novartis said. Z-601 is a novel broad-spectrum antibiotic in Phase II development against potentially deadly drug-resistant infections, including MRSA and ESBL strains, Novartis said.
Novartis will initially pay $100 million for privately held Protez, with a potential for up to $300 million of additional payments depending on the success of PZ-601, the company said. The emergence of hospital superbugs such as MRSA, which are resistant to existing medicines, has increased the need for alternative treatments and re-focused attention on antibiotics.
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A point to note is that milestone based payments will result in a larger number for the total project cost/ business valuation – compared to upfront payment – but in my experience that extra is well worth the reduced risk, especially in transactions with strangers or new business partners.
Despite best effort, there are unknowns in the business environment which will come into play as time progresses – and Milestone Based Payments give you the ability to adapt better.