Intellectual property is the lifeblood of your startup. In recent study by MIT on the characteristics of successful startups found startups with IP are more successful than those without IP. In particular, it noted that the success of startups wits trademarks are five times higher and those with patents is 35 times higher.
Other research studies also confirm that startups with IP are more attractive to investors, tend to grow faster, have more revenue options, higher valuations and better exit opportunities.
A big part of these startups strategy focuses on managing and making money with their intellectual property. Since your startup has little or no revenues, your IP is the biggest part of your startup value, and investors favor startups with solid IP and a strategy to capitalize on it in as many ways as possible. They’re more likely to invest because even if the your startup fails, if the IP has value, it can be sold in the marketplace.
You’re spending lots of time creating business plans and presentations to raise capital. But are you answering the three most important investor questions – what is your IP, why it sets you apart and how it keeps your competitors at bay. Your IP strategy must be aligned with your business goals. More importantly, it must communicate to investors how you will use your IP to strategically grow your startup.
For example, if you’re making and selling a product directly to consumers, is your trademark equally or more important than a patent? Does your patent put up a competitive barrier? Can you license your patent in other ways to generate other revenues?
If you don’t address these questions in your startup strategy, you wind up moving in a direction that misses a big part of your startup value, and worse, risk being perceived by investors as a commodity provider competing on price.
Keep in mind investors are looking to maximize their returns. They evaluate whether your startup and its IP assets give an advantage over your competitors, and more importantly, whether it’s a sustainable advantage and scale-able.
In the last 10 years, some big investment funds, such as Blackrock, are moving into the IP funding business. They’re investing in IP assets because the value of these assets can be established. They look for start-ups with IP assets that are close to being market ready which makes investing in it much more attractive and lower risk. One example is a California fitness gadget startup that received $300 million in financing.
It doesn’t matter what type of startup you are – product, service or technology – your most valuable assets are your intellectual property. Your IP is the biggest part of your startup value. It increases the likelihood of getting funding from investors or lenders because it gives you a sustainable competitive advantage, greater chance of market success and higher investor returns. Your long-term profitability and eventual exit from your startup depends on your ability to protect, manage and use it to propel your startup into the marketplace.