Recently I have worked with startups that have critical IP in life sciences, med tech and media. Many startups have IP opportunity (and risk) but their importance is not always understood. Given my experience at prominent European IP consultancies, this is a subject close to my heart, and it's one that every founder should have on their radar. In this article I'll cover:
Research showing the association between IPR filings and startup funding.
How IPR is a strategic move increasing startup funding, valuation and competitive edge.
What IPR is and some common misconceptions.
Startups with IP increase their chances to secure funding
According to an EUIPO report published in October 2023, the filing of patents and trade marks at the seed or early growth stage is associated with a higher likelihood of subsequent VC funding.
This effect is particularly important at the early stage, with a 4.3 times higher likelihood of funding for start-ups that filed trade marks, and a 6.4 times higher likelihood of funding for start-ups that filed patents. Start-ups that filed both trade marks and patents show the highest likelihood of funding at both the seed and early stages.
Protecting IP rights during the seed stage of your startup is not just a legal necessity; it's a strategic move that can significantly impact your venture's ability to attract funding, increase its valuation, and establish a strong position in the market. Here is how:
Attracting Investors: Investors often look for startups with a strong foundation, and having protected IP signals that your business has a unique and defensible position in the market. This can make your startup more appealing and increase its chances of securing funding.
Increasing Valuation: Intellectual property can contribute to the overall valuation of your startup. Investors may see it as a valuable asset that adds to the company's worth, potentially leading to a higher valuation during negotiations.
Reducing Risks: Securing IP rights helps mitigate the risk of legal challenges from competitors. It provides a level of assurance to investors that your startup is less likely to face costly legal battles over intellectual property issues, which could disrupt operations.
Building Credibility: Demonstrating that you've taken steps to protect your intellectual property showcases your commitment to the long-term success of your business. This commitment can build trust and credibility with potential investors.
Creating Barriers to Entry: IP protection establishes barriers that make it more difficult for competitors to replicate your product or service. This competitive advantage can be attractive to investors who are looking for startups with sustainable and defensible business models.
Facilitating Partnerships and Licensing: Protected IP can make it easier to form strategic partnerships and licensing agreements. This not only adds potential revenue streams but also demonstrates the versatility and value of your intellectual property.
What are Intellectual Property Rights and their common misconceptions.
Intellectual property (IP) rights refer to legal protections granted to the creators or owners of intellectual assets. These assets can include inventions, designs, literary and artistic works, symbols, names, and images used in commerce. The primary purpose of IP rights is to encourage innovation and creativity by providing creators and inventors with exclusive rights to their creations for a specified period.
Patents: Protection for inventions or discoveries.
Copyright: Protection for original works of authorship, such as literary, artistic, and musical creations.
Trademarks: Protection for symbols, names, and slogans used to identify and distinguish goods and services.
Trade Secrets: Protection for confidential business information, like formulas, processes, and methods.
Design Rights: Protection for the visual design of objects.
A misconception is that obtaining a patent is the only way to protect intellectual property. In reality, the choice of protection depends on the nature of the creation. For instance, copyright protection is automatic upon creation, while patents require a formal application process.
Additionally, there's a prevalent misunderstanding regarding copyright and trademark protection. For example in the area of gaming media, founders might assume that copyright protection automatically extends to trademark rights for stories and characters. In reality, these are separate forms of protection, each with its own application process and considerations.
While copyright guards the expression of ideas in specific works, trademarks protect symbols and names associated with products or services. Recognizing these distinctions is vital for comprehensive and effective intellectual property protection in the dynamic landscape of gaming and media.
It is highly recommended to consult with an IP expert to establish the right strategy for you. For IP and capital intense ventures, like healthcare and clean energy, you should consider to bring an IP expert on your team.