The Positive Relationship Between Patents and Funding
Put yourselves in the shoes of venture capitalists. After hearing hundreds of pitches per week, you need to decide which of the pitches are worth pursuing, and which e-mails move to your “Trash” folder.
It’s arguably one of the hardest decisions to make — no one is a fortune teller! But, there are a few key indicators that can pique the interest of investors — and prove to them that your startup stands out in a crowded room.
The most important indicator for venture capitalists is your idea.
Don’t roll your eyes! There’s more than meets the eye when we discuss what an “idea” constitutes. An idea isn’t just a casual conversation that you have with friends over coffee. It’s a unique, novel way of solving problems.
Did you catch the two key qualifiers in the above paragraph? An idea is unique and novel — without those two qualities, an idea will fall flat in the eyes of investors. While you can optimize and perfect your sales tools or marketing strategy, these tweaks to your business strategy will be irrelevant without a solid idea in place. An idea should be verified, researched, and validated.
Once you’ve nailed down your idea, the next step is translating your idea into a valuable asset. By translating your idea into an asset, you’ll be able to monetize your idea. And guess who loves high return-on-investments? Investors.
There’s no other way to translate your idea into a valuable asset besides intellectual property (IP) — because IP is considered an asset that can be bought and sold. So, with IP protection for your idea, you’re essentially raising your business valuation — you can find that value on your balance sheet under “intangible assets.”
Venture capitalists place a great deal of value on patents. They see patents’ function as two-fold: firstly, patents protect your startup’s unique value proposition — your startup’s “secret sauce”; secondly, patents protect your startup’s place in the market from competitors. Venture capitalists are simply uninterested in putting money behind an idea that will eventually be copied. It’s too risky.
For those of you who prefer to measure value not through stories, but cold, hard numbers, we’d like to answer the question you’re probably thinking:
How much is a patent worth to a venture capital firm?
$1 million dollars
Startups with at least one patent tend to have a valuation that is at least $1 million dollars higher than without. Incrementally, each additional patent can also add $1 million dollars to a startup’s valuation. In numerical terms, that’s one measure that venture capital firms apply to your startup when evaluating its worth.
There’s another component to why venture capital firms love patents. While we don’t want to wish this upon you, imagine your startup becomes defunct. Venture capitalists are constantly looking for confirmation that there is still value that they can extract from your startup, even in the case of failure. Patents offer that confirmation to investors — because even if your startup ceases to exist tomorrow, patents make it possible for your investors to still sell your patents (because they’re assets that can be bought and traded, just like any other asset).
If you’re looking for a way to show investors that your pitch deserves to be front and center on a venture capitalist’s mind, then patents are a strong signal that you’re serious about your business idea.
At KISSPatent, we help entrepreneurs and innovators to monetize their ideas. We put the power of patent protection for your unique idea in your hands. We help startups increase their valuation, keep from getting blocked, and protect their ideas and their communities. Contact us to get started here.
Visit our Learning Hub to learn more about how intellectual properties can contribute to your startup’s success.
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