Intellectual property underpins more than 40% of the entire United States gross domestic product. That is what a United States Patent and Trademark Office report from 2016 declared. Inside the intensely competitive startup environment, IP goes beyond a mere legal requirement; it is the very thing that determines a company’s worth and its ability to pull in critical investment. From where I stand, a startup’s IP assets say a lot about its ingenuity, its advantage over others and its potential for huge growth. How do investors evaluate IP? And what actions can startups take to increase their attractiveness to investors looking for startup funding?
What Investors Look for in IP
Investors weighing up startups that depend on IP do not simply count the number of patent applications. They examine the quality, scope and alignment of the IP with business goals. From my experience, here are the key things they look at:
1. How Strong and Wide Is the Patent?
The real value of a patent is found in its originality, how easy it is to understand and how broad its claims are. A truly solid patent protects a key invention, making it nearly impossible for rivals to get around it. Investors look closely at patent claims to understand how much protection there is and how likely it is to be enforced. Here are some important things to keep in mind:
- Patent claims: Do they cover many uses of the invention, or are they limited to one specific design?
- Prior art: How is the invention different from existing technologies? A thorough search of existing technologies is needed to confirm the patent is valid.
- Enforceability: Can the patent hold up against claims of infringement? Investors look at the odds of lawsuits and the chance of winning.
2. Is It Relevant to the Market and Can It Make Money?
A patent is only as good as its ability to protect a product or service that can be sold. Investors carefully assess the market significance and ability to generate revenue from the patented technology, paying close attention to things such as:
- Market size and growth: Does the patented technology address a large and growing market?
- Competitive landscape: How does the technology compare to other options? Does it offer a significant advantage when it comes to performance, cost or what it can do?
- Commercialization strategy: Does the startup have a clear and practical plan for bringing the technology to market, covering manufacturing, distribution and marketing?
3. Is There Freedom to Operate (FTO)?
Even the strongest patent portfolio means nothing if a startup does not have the freedom to operate, meaning it cannot sell its technology without infringing on existing patents. Investors conduct FTO analyses to find any potential risks of infringement and see how prepared the startup is to deal with the IP situation. This means finding patents that could block the startup’s activities and assessing how strong those patents are. I remember advising a client who was creating a new medical device. My FTO analysis revealed a competitor’s patent that covered a key part of their device. Because of this, the client was able to redesign their device to avoid infringement, preventing large legal costs and potential delays.
Making Your Startup’s IP More Attractive
For startups seeking startup funding, a solid IP plan is critical for getting investors to notice you. Here are some key things to focus on to improve your IP assets:
1. Be Proactive About Patenting
Do not wait to patent your technology until it is completely finished. Taking early action to file a patent in India, or your target market, is important to secure your priority date and prevent others from copying you. A proactive approach to patenting tells investors you are serious about protecting your IP and creating a strong advantage. Think about filing provisional patent applications to get an early filing date while you test the market for your invention before committing to the full patent process. These applications are less formal and less expensive, giving you time to assess the market.
2. Conduct Regular IP Audits
Regularly check your IP assets to find any weaknesses or gaps. This includes looking at the strength of current patents, finding possible risks of infringement and spotting chances for new patent filings. An IP audit can also uncover IP assets that are not being fully used or are not aligned with your business plan. A strong patent helping startups shows investors you are actively managing your IP.
3. Highlight IP in Your Pitch Deck
Make your IP a key part of your pitch deck. Clearly state the value of your patents, trademarks and copyrights, showing how they help you stand out from the competition. Use visuals to highlight key technological features and the scope of your patent protection. Quantify the potential market for your technology and show how your IP will allow you to capture a large share. For example, include slides that detail the number of patents filed, the geographic reach of your IP and possible income from licensing or commercialization.
4. Get a Professional Patent Valuation
A patent valuation for startups provides an unbiased view of the financial value of your IP assets. This can be very helpful in attracting investors and negotiating good terms. There are different ways to value a patent, including cost-based, market-based and income-based methods. The best method depends on the specific qualities of your technology and the data available. A professional patent valuation gives you the knowledge to show the potential return on investment of your IP and clearly communicate its value to investors.
5. Hire Experienced IP Counsel
Understanding IP law can be difficult, especially for startups. Hire experienced IP counsel who can guide you on patent prosecution, FTO analysis, licensing and enforcement. A skilled IP attorney can assist you in creating a comprehensive IP strategy that aligns with your business goals and protects your valuable assets. They can also help you avoid common mistakes that could put your IP rights at risk. It can also be useful to find a lawyer who can assist you to file a patent in India.
The Future of Patent-Backed Funding
Because IP is becoming more and more important in the global economy, patent-backed funding is likely to become a more common way for startups to get funding. Investors are increasingly aware of the inherent value of IP as a strategic asset and are more willing to invest in companies that have strong IP assets and a well defined plan for commercialization. By actively managing IP and working with experienced IP counsel, startups can put themselves in a position to succeed in the highly competitive funding market.
So, what is the main point? Investors evaluate IP as an indicator of a startup’s ability to innovate, differentiate itself and achieve long term growth. By understanding what investors are looking for and developing a strong IP strategy, startups can increase their attractiveness and get the funding needed to bring their ideas to life.
