Startup valuation and the importance of patents

A lot of discussion and debate has centered on patents and their impact on startup valuations in recent years. A minority of investors think patents should be ignored when determining a startup’s worth. Nonetheless, there are many who view themselves as vital to the process.

As patents can be easily replicated or avoided, their value has been questioned. Others argue that a patent can help a startup by safeguarding its intellectual property and giving it an advantage over its rivals.

There is no universally applicable response to this question because it depends on details specific to each investment and the perspective of the particular investor. Notable examples include Google, Facebook, and Amazon, all of which have built successful businesses on the backs of innovative products and services protected by a plethora of patents.

This article will discuss the concepts of intellectual property value and IP protection and how they may be used for investors’ confidence, competitive advantage, and business owners to maximize the potential of start-ups.

Click Here for AI Startup Valuation Guide.

Understanding the Role of Patents in securing funding and investor confidence

Patent protection aids investors in safeguarding their investments by constructing and maintaining competitive barriers that may raise the market value of your technology.

Patent protection should improve your startup valuation. If properly constructed, patent protection should increase the value of your startup by allowing you to control access to the market(s) for your invention. All other factors being equal, a firm with patent protection that gives tight control over access to huge market(s) should be valued higher than a startup without strong patent protection. In addition, a potential purchaser would often examine the strength of your patent portfolio when considering the value of your company.

Click Here for AI Startup Valuation Guide.

Intellectual property as a competitive advantage in the startup world

Since it is the basis of their competitive edge in the market, intellectual property (IP) is a valuable asset for startups. Startups can safeguard their innovations and creations from being duplicated or exploited by rivals thanks to intellectual property. In other words, intellectual property grants startups the unique right to use, manufacture, and sell their goods and services.

Because it can give them a competitive advantage, intellectual property is crucial for startups. Instead of relying on venture capital or other sources of financing to meet their costs, it enables startups to sell their intellectual property. Moreover, intellectual property can improve brand visibility and notoriety for a startup. By securing a patent or copyright on their product or service, a startup can establish itself as the go-to source for that product or service in the market.

Intellectual property also provides a form of protection for startups. Patents, trademarks, and copyrights are all important instruments for protecting startups from competitors who may seek to steal or misappropriate their ideas or products. If a startup possesses a patent or trademark for its product, it can take legal action against anyone who infringes on it. This form of protection can spare the startup from expensive legal battles in the future.

Lastly, intellectual property can be a powerful asset for attracting investors to a firm. Investors are more inclined to invest in a startup that has some type of intellectual property protection in place. This is because they consider intellectual property as a form of protection; if a company has exclusive rights to its products or services, it is less susceptible to competition and has a greater chance of long-term success.

Click Here for AI Startup Valuation Guide.

Case studies: Successful startups that leveraged their patents for the higher valuation

According to recent research, a startup’s funding prospects improve with the number of patents it possesses. In fact, protected intellectual property remains a significant signal of value in the current financial environment.

According to a recent PitchBook analyst study, national data from 2011 to 2020 indicates that startups with patents or pending patent applications raise significantly more financing than their nonpatent peers. Below are examples of successful startups that leveraged their patents for higher startup valuation.

Airbnb 

Airbnb, the online marketplace for short-term lodging, holds several patents related to its platform, including patents related to its search algorithms and booking system. These patents have helped Airbnb to establish a strong brand and competitive advantage in the crowded lodging market. Airbnb went public in 2020 and was valued at over $100 billion at the time of its IPO.

Intuitive Surgical 

Intuitive Surgical, a medical device company that develops robotic surgical systems, holds several patents related to its technology, including patents related to its surgical instruments and control systems. These patents have helped Intuitive Surgical to establish itself as a leader in the surgical robotics market and have contributed to the company’s rapid growth and success. Intuitive Surgical went public in 2000 and has since become one of the most valuable medical device companies in the world.

Square

Square, the payment processing company, holds several patents related to its technology, including patents related to its point-of-sale system and payment processing algorithms. These patents have helped Square to differentiate itself from competitors and establish a strong brand in the crowded payment processing market. Square went public in 2015 and has since seen its startup valuation grow to over $100 billion.

Each of these companies was successful in establishing a strong brand and competitive edge by utilizing their patents, which ultimately led to their success and increased startup valuation.

Click Here for AI Startup Valuation Guide.

Future trends in startup valuation and patents

In conclusion, startup valuations and patents’ intellectual property protection are vital in the ever-changing world of entrepreneurship. Innovative startups with scalable business plans, patents, and high startup valuations are more likely to attract investors and compete in the market.

Looking toward the future,  we might predict numerous patterns in startup value and patents, and there may be a shift towards using data-driven and technology-enabled methods to evaluate company valuations. Advanced analytics, machine learning, and AI can better assess a startup’s growth, market opportunity, and financial success. This may result in more objective and data-based valuations, eliminating subjective biases and boosting decision-making.

The success and sustainability of startups will continue to depend heavily on startup value and patents. Developing ideas like data-driven startup valuation, strategic patent management, and collaborative patenting may shape startup valuation and intellectual property protection. To remain competitive in the fast-changing startup ecosystem, startups and investors need to keep up with these trends.

Click Here for AI Startup Valuation Guide.

Our team of advanced patent attorneys assists clients with patent searches, drafting patent applications, and patent (intellectual property) agreements, including licensing and non-disclosure agreements.

Advocate Rahul Dev is a Patent Attorney & International Business Lawyer practicing Technology, Intellectual Property & Corporate Laws. He is reachable at rd (at) patentbusinesslawyer (dot) com & @rdpatentlawyer on Twitter.

Quoted in and contributed to 50+ national & international publications (Bloomberg, FirstPost, SwissInfo, Outlook Money, Yahoo News, Times of India, Economic Times, Business Standard, Quartz, Global Legal Post, International Bar Association, LawAsia, BioSpectrum Asia, Digital News Asia, e27, Leaders Speak, Entrepreneur India, VCCircle, AutoTech).

Regularly invited to speak at international & national platforms (conferences, TV channels, seminars, corporate trainings, government workshops) on technology, patents, business strategy, legal developments, leadership & management.

Working closely with patent attorneys along with international law firms with significant experience with lawyers in Asia Pacific providing services to clients in US and Europe. Flagship services include international patent and trademark filings, patent services in India and global patent consulting services.

Global Blockchain Lawyers (www.GlobalBlockchainLawyers.com) is a digital platform to discuss legal issues, latest technology and legal developments, and applicable laws in the dynamic field of Digital Currency, Blockchain, Bitcoin, Cryptocurrency and raising capital through the sale of tokens or coins (ICO or Initial Coin Offerings).

Blockchain ecosystem in India is evolving at a rapid pace and a proactive legal approach is required by blockchain lawyers in India to understand the complex nature of applicable laws and regulations.