The role of patents in startup valuation

Patents play an important role in the growth and fundraising success of firms across all industries. Patents provide legal protection for these startups’ novel and inventive ideas and enable young businesses to secure one of their only assets, their intellectual property.

Patents can also indicate to investors that your startup valuation has a strong commitment to innovation and that your technology is valuable enough to be considered an asset in and of itself. This increases investor confidence and your likelihood of securing a favorable investment.

In this article, we will examine patent risk reduction, value creation, and establishing investor confidence and trust with a solid intellectual property base.

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Reducing risks with a well-managed patent portfolio

A well-managed patent portfolio can be a strategic method for minimizing intellectual property (IP)-related risks and maximizing the value of your inventions. Listed below are some of the most important ways that a well-managed patent portfolio can help mitigate risks:

Identifying inventions to patent

Identifying and selecting inventions for patent protection is portfolio management’s front end.

At this stage, examine how crucial the invention is to your future products and services.

To your and the inventors’ knowledge, how “new” is the invention?

Your budget allows patent applications for what percentage of inventions?

Can competitors replicate the invention and prove it in court?

Initial patent filing

For most inventions, you’ll file an initial patent at the UK Intellectual Property Office or European Patent Office before determining whether to file in other nations.

The patent office’s search report, which takes six to nine months to complete, can inform this judgment. The patent office searches for relevant previous art in the search report.

Geography

To obtain National Patents, you must file separate patent applications in each country.

One year after patent filing, choose which countries to file in. Filing an international patent application before the one-year deadline delays this decision by 18 months.

Considerations for filing countries include

The product line impact of the invention.

Where you will sell invention-related goods and services.

Where your competitors may make and sell infringing products.

Country legal systems and cost.

Coordinating prosecution

The process of getting a patent from a patent application is called “patent prosecution.”

This usually involves negotiating with the patent office to offer modifications to the application and/or arguments in support of the invention to get a patent.

If patent applications are filed in multiple countries, their prosecution may be coordinated. This is to ensure consistent patent protection throughout the countries.

Pruning

Patent applications and patents may lose value over time. For instance, a product may have a shorter lifespan than the typical 20-year patent period, or it may not be as successful as expected when the patent applications were filed.

However, the expense of seeking patent protection and keeping granted patents through frequent renewal costs increases with patent age.

Balance these two considerations to prune fewer value patents from your portfolio.

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Value creation through effective patent management and monetization

All disclosed information becomes public domain after patents expire. You can no longer stop a competitor from using your technology. A patent lawyer can help you protect and retain your patent and minimize financial loss. 

Even more crucially, preparing a patent filing is expensive, but without carefully matching your patent’s claim language with your business goals throughout drafting and examination, the patent may not be profitable to the company.

At the relevant company project phase, patent portfolio management involves patentability, freedom-to-operate, and landscaping searches. Product/technology monopolies are revealed by patentability searches. Search freedom can direct progress and avert lawsuits. White spaces and uncontested marketplaces can be found through landscaping searches.

Maintaining your portfolio avoids mistakes. Thus, a portfolio manager with expertise in intellectual property rights (patents, trademarks, copyrights) is advantageous. Portfolio management is best done by a person who is regularly involved in the creation of new technology/product/design improvements and can align them with the company’s commercial goals, rather than an outside council that only sees a few distinct moments in the company’s life. 

Thus, well-managed patent portfolios have financial and non-financial benefits. It’s worth buying. The proper team and specialists maximize returns.

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Building investor trust and Confidence with a strong intellectual property foundation

Building investor trust and confidence requires a solid IP base. It comprises protecting IP assets through patents, trademarks, copyrights, and trade secrets, doing rigorous IP due diligence, formulating a comprehensive IP strategy, maintaining excellent IP hygiene, cultivating a culture of innovation and IP awareness, and seeking legal expertise. Such approaches show investors that a corporation is proactive in managing and preserving its IP assets, minimizing IP-related risks, and maximizing intangible asset value. This may boost investor confidence and corporate growth. Patents can also show investors that your firm is committed to innovation and that its technology is valuable enough to be an asset. That enhances investor confidence and increases your chances of a good investment.

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The evolving landscape of patents and startup valuation

Startup valuation and patents change continuously. Patents, which provide inventors exclusive rights, can boost a company’s worth by protecting inventions and giving them a competitive edge. Patents can establish obstacles to entry, attract investors, and enable licensing or acquisition arrangements, making startups with strong patent portfolios more valuable. However, patent regulations, industry developments, and technology complexity might affect startup valuation. In today’s competitive startup valuation climate, companies must stay abreast of the changing patent landscape and proactively manage their IP assets.

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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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