One of the biggest banks in North America is now in the startup funding game. TD Bank Group created a $3 million plus investment fund to provide patent application funding for startups in the fintech space.
The goal is to help startups with one of their biggest and most important expenses – protecting their valuable IP. It’s non-equity based funding and gives the bank relationships with early stage startups. In return TD bank gets a non-exclusive license to the patent. If the technology proves out, the bank offers larger rounds of funding.
The upside for the bank is rights to use the latest in fintech to build their business. The upside for the startup is a big licensing partner to launch their IP into the market as soon as it’s ready.
IP plays a critical role in today’s startups. According to a recent study by the US Patent and Trademark Office, startups with patents are more successful than those without. The study found that a patent increases a startups chance’s of receiving investor funding by over 50%. Startups with patents also created more jobs, had higher sales revenues, were more innovative, and were more likely to go public or be acquired.
For many startups today, a corporate venture fund (CVF) offer a better route to go. Unlike institutional or private VC’s, which are short-term focused on financial returns, CVF’s like TD Bank, invest for longer term strategic reasons. CVF’s are also less hands on, giving the startup more control over their company and IP development. In return, the CVF offers several exit opportunities, including licensing, OEM partnerships, new sales channels, or an acquisition.
CVF’s are growing because startups are playing a critical role in developing innovation. According to a report from the NSF, R&D spending by startups and small businesses increased from just over 4 percent in 1981 to about 24 percent in 2009 (NSF 2012). A big reason for investment by corporations is it’s a faster way for finding complementary products and services, acquiring new disruptive technologies, or finding new market opportunities.
Companies such as Google, J&J, Qualcomm, Comcast, Dell, Microsoft, Nokia and Intel all have a CVF. Not only do these funds invest significant capital, they also offer other resources such as access to corporate labs, skilled R&D personnel, marketing, sales, manufacturing and regulatory know-how, which accelerates a startups’ innovation activities. In certain industries, such as life sciences, where there’s lot’s of development risk, high capital investment amounts, and longer time to market, big corporations make the investments to encourage new innovation development in their industry.
This is the approach GE Ventures uses. They invest in startups with technology in areas of health care, manufacturing, software, energy, and even IP that improves their internal productivity and efficiency. The company offers several investment options including equity, joint business ventures, and licensing. Plus they offer access to other resources such as labs, technical expertise, and even partners and customers to help a startup scale up revenues.
Rather than going head to head with big competitors, consider partnering with them to fund your startup. Not only can CVF’s be a great source of capital, they can also be a great licensing or strategic alliance partner, providing key resources to help accelerate your time to market. Click here, here and here to read more about CVF’s.