If you have founded/co-founded an early-stage startup, you’re probably spending a significant amount of time raising funds. At an early stage, it can be difficult to attract funding sources, such as angel investors or venture capital (VC) because investors won't invest unless there is a unique value proposition.
Serious VC firms understand the importance of IP (patents and trademarks) when valuing a business. Startups with appropriate IP protections in place are more likely to sustain a competitive advantage, reduce financial risks, and raise funds.
To increase the value of your startup and the odds of securing an investment, here are a few things to consider for your IP portfolio.
What investors want to see in a startup
1. A Patent strategy
Investors want to see that your startup has a plan of what is proprietary to your startup and how to protect it.
A patent strategy should align with your business goals and be forward-looking. You should be able to explain how your patents fit into your overall business strategy.
Will your plan be to develop a market for your product, thwart knockoffs, and own the market? Will your plan be to develop strategic partnerships and license your patents?
2. Know your competition
Investors want to know where your invention fits into the market relative to competitors. A patent strategy demonstrates that you have thought about whether your product is viable and is superioer to the competition.
Additionally, a good patent strategy will cause potential competitors to make a difficult decision about whether they want to risk infringing your patents by entering the market. Further, a good patent portfolio can provide a war chest to fight competitors who accuse you of infringement.
3. Own your patents
To attract venture funding, you must own your patents. You should not have obligations to competitors, previous employers, estranged inventors, or other parties. Make sure to document your ownership of your patent applications and issued patents and get good confidentiality and invention assignment agreements (CIAAs) in place. Also, avoid agreements granting broad licenses to others, such as grants.
What investors don't care about in a startup
1. Freedom to Operation Opinion
A conventional patent search provides a landscape view of whether an invention may be patentable. Many people incorrectly believe that a patent search indicates whether a startup could be sued for infringing somebody else’s patent. However, this type of analysis is known as a freedom to operate or an IP clearance search.
Generally, a freedom to operate search is usually not necessary for attracting funding as it isn't realistic to expect a startup to know with certainty that they will never infringe another company’s patent (especially given most startups pivot several times before finding market fit).
Investors just want to know that the startup is not aware of any major roadblocks from entering an industry/space.
2. A major law firm representing your startup
Many startups assume that the best patent attorneys are the ones working at big expensive law firms ("Big Law"). These “Big Law” patent attorneys are expensive and can quickly drain a startup’s limited resources.
Many investors know that you can get high-quality representation at small firms
Additionally, investors will usually have their own patent attorneys look at your portfolio, so regardless of who your patent attorney/firm is, the investors will get independent evaluations of the quality of your patent portfolio.
