The connection between patents and startup valuation

A granted patent enables a startup to differentiate itself from competitors and make its mark with its invention. It also enables a startup to prevent unauthorized use of its innovative technology or products by other businesses. In addition, with an exclusive license to sell a patented product, a startup can set the market price for their claimed invention. 

In today’s competitive environment, companies and startups are required to secure their intangible assets similarly to their tangible assets. Both a corporation’s tangible and intangible assets determine how much it is worth. Intangible assets include trademarks, patents, designs, and copyrights; trade secrets; goodwill; and brand value.

Protecting and securing intellectual property provides the business with numerous additional benefits, including brand recognition and increased market value.

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Boosting your startup’s growth potential through patent protection

Patent protection can be a strategic tool for startups to boost their growth potential. Here are some ways in which patents can contribute to the growth potential of a startup:

Competitive advantage

Patents allow startups to exploit their technology exclusively, providing them with a business advantage. This might boost income and market share for the startup.

Attracting investment

Patents can help tech businesses get investors. Strong patent portfolios can provide firms with a competitive edge and safeguard their technologies, which attracts investors.

Licensing opportunities 

Patents can also be utilized to produce revenue through licensing agreements. This can boost the startup’s valuation and revenue diversification.

Barriers to Entry

Patents can keep competitors out and boost the startup’s valuation.

Legal protection

Patents can shield a startup’s technology and revenue streams from costly legal conflicts.

Innovation

Startups can protect their intellectual property on new products, services, software, processes, designs, and other innovations via patents.

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Attracting investors with a strong patent portfolio

Patents can assist a firm in attracting investors in a variety of ways.

First, a patent grants a company exclusive rights to its idea, which can help it compete and attract investors.

Second, a patent can help negotiate with investors and partners. A corporation with a strong patent portfolio may convince an investor to grant more cash or better terms.

Third, a patent makes a company more appealing to acquirers. Patents protect a company’s technology from copycats and reverse engineers.

Fourth, patents protect investors if the company fails. Patents protect fresh ideas. Patent value is independent of startup success. Furthermore, investors can recover some of their money.

Thus, while a patent doesn’t ensure success, it might attract investors and boost a startup’s worth.

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Strategies to maximize the value of your intellectual property

Here are eight ways to use intellectual property to maximize the value of your intellectual property:

Multiple PPAs. 

These applications should focus on innovation, not merely invention. Your invention is novel and unique. But if you have a large idea—meaning your invention might be made in other ways or used across other categories in many other ways—you will want to safeguard your right to own and benefit from that innovation.

Familiarise yourself with the prior art. 

Your invention’s history should begin with patents. Every invention has prior art. As you delve through it, your goal is to refine your point of distinction. Negotiation leverage comes from understanding how your invention differs from similar patents.

As your invention improves, keep filing PPAs. 

Filing provisional patent applications on different versions of your idea can help you in more ways than just building a “wall” of intellectual property. This is because you understand the landscape of prior art. To put it simply, these changes might help someone else. By pursuing sublicensing opportunities, you can generate additional revenue.

File your patents internationally. 

This can become quite expensive. Before negotiating a licensing agreement or forming a partnership with another party, you should investigate their business. In how many countries does their product or service currently sell? Where? And in what sort of quantities? You must have a comprehensive understanding of the business you are negotiating with.

If you obtain patent protection in these countries, you provide your licensee or investor with added value.

Design patents are crucial. 

Design patents can assist in preventing online vendors. The tool has been of limited use in the past. However, due to the frequency with which copycats and infringers create identical copies, these types of patents can now be an effective part of your defensive arsenal.

Register copyrights. 

Copyright is a low-cost legal safeguard for authors of artistic and literary works. Poetry, books, films, songs, computer software, architecture, and photographs are included. To inform platforms like Amazon of infringement, you must register a work. Copyright registration can shut down counterfeiters who steal and misuse brand images.

File trademarks to round out your portfolio. 

Brands have trademarks. Creating a powerful brand that investors or licensees may use is a good choice. Trademarks can stop internet infringers and copycats.

Respect the value of trade secrets. 

According to the USPTO, trade secrets “can include a formula, pattern, compilation, program, device, method, technique, or process.” The secret must be applied in business and give users an economic advantage. According to the USPTO, some inventions are patentable or trade secretable. Consider how various IP types assist your aims. Trade secrets are crucial because the devil is in the details. Designing a new manufacturing process takes time and energy. Since developing it from scratch would be expensive, keeping it secret is valuable. Protect your trade secrets with strong non-disclosure agreements and advice from your patent attorney.

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The lasting impact of Patents on startup valuation

In conclusion, patents can have a lasting impact on startup valuation. A strong patent portfolio can signal a startup’s unique and defensible technology, providing a competitive advantage that can enhance its valuation. Patents can also create licensing and revenue opportunities, generating additional income and increasing their valuation. Furthermore, during exit strategies like M&A or IPOs, a startup with a strong patent portfolio may be valued higher as it can provide potential acquirers or investors with a competitive edge and future revenue streams. However, it’s important to consider factors such as the quality and relevance of the patents as well as the overall market and business environment, which can influence the impact of patents on startup valuation. Startups should carefully strategize and protect their intellectual property with patents to potentially maximize their startup valuation and overall success in the market.

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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.

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