More often than not, startups encounter obstacles as regards their ability to finance growth. Examples include but aren't limited to information asymmetries, patchy track records, and inadequate collateral. Financing an innovative business can be daunting, but it's certainly achievable. Patents increase venture capital investments as they confer monopolistic market rights, offer protection from competition, and enhance results at the bargaining table. In other words, by vetting the claimed benefits and originality of your invention, you guarantee the quality of your idea, improving relationships between your startup and investors.
Companies With Patents Have a Higher Valuation Than Those Without
An innovative business with a patent earns more cash during the initial stages of fundraising and gives up less ownership in the process. To be more precise, a patent can help your company's valuation by providing a competitive advantage and demonstrating a commitment to developing breakthrough products (or services) for adoption by customers. You have no track record or collateral to tip the scale in your favor when it comes down to acquiring funding, particularly venture capital. Patents act as quality signals for investors, especially venture capitalists, attenuating financial constraints. Lenders can derive probabilities for success that can't be directly observed.
The Truth Is That So Few Patents Create Real Value
Attention must be paid to the fact that not all patents are created equal, meaning that some are more valuable than others. If you want to improve the odds of your business to secure financing, get a utility patent by filing an application with the United States Patent and Trademark Office. While a utility patent attorney isn't required to file an application, it's most definitely recommended, as they'll help you navigate the intricacies of the process and avoid costly mistakes. Have figures to illustrate the merits of the invention, not to mention supporting documents.
A utility patent is an invaluable asset owing to the fact that it gives you exclusive commercial rights to produce and use the technology. It might be necessary to pay maintenance fees over the 20-year time period. Patents are a complicated area of law, which means that incorrectly filing an application can result in denial or not receiving full protection for your invention. You've invested a considerable amount of money and time in developing an innovative product, and a patent offers recognition for your creativity. Partners, investors, and shareholders will perceive your patent as a demonstration of expertise, so it will prove useful in raising funds.
It's Crucial to Care About Your Intangible Assets from The Very Get-Go
Intellectual property matters. Venture capitalists want to invest in a startup that's well-run, so if you're serious about the future of your business, give it the appearance of high value. Don't wait until you're seeking funding to secure intellectual property ownership and protection. As your business matures and information asymmetries between you and investors decrease, the value of the patent might diminish and not affect the level of funds raised in the second round. Keep in mind that the amount of venture capital funds raised depends on certain characteristics, such as size and syndication.
Join the Conversation