How Many Startups Apply For a Patent?
If you’re wondering how many startups apply for a patent, you’re not alone. Startups across many industries are filing patent applications at an alarming rate. Companies in the biotech and semiconductor industries are among the most patent-intensive sectors. Getting a patent can significantly boost a startup’s exit valuation, and VCs are typically more willing to invest in startups that have one. If you’re still unsure about filing your first patent application, here are some things to consider:
Companies in the semiconductor and biotech industries have the highest patent application rates
There is a parallel between the success of the U.S. semiconductor industry and the success of biotech firms, which both hope to experience the same types of development and innovation. The companies in both industries hope to benefit from the intense competition, wide commercial diffusion, and spectacular financial re-turns that have characterized the semiconductor industry. In other words, companies in both industries need government support in developing and commercializing novel technologies.
In 2008, one out of five U.S. companies conducting R&D submitted a patent application. This resulted in the issuance of 65,879 patents by the U.S. Patent and Trademark Office. While patents are not directly related to innovation, they are used as a proxy measure of innovation output. Companies in these industries filed nearly double the number of patent applications as the average for all U.S. companies.
The semiconductor and biotech industries are the most patent-intensive sectors of the technology industry. While R&D is dominated by a small number of large companies, this does not mean that the ratios for other sectors are necessarily representative of the average company. Means and medians are a good way to compare data from different companies. In table 3, you can see the mean patent application rate for a subset of BRDIS companies.
Startups should file early
Filing early for a patent is important for startup companies. Many startups don’t have the funds for patents, but they must prove ownership of the IP rights to prevent infringement of other people’s patents. The first person to come up with the invention is often the inventor of the patented product. Make sure you’ve checked for any agreements or contracts transferring the rights to someone else. During the first phase of the patent application process, check your funding to see if you can pay for it.
Another reason to file early is to avoid the risk of developing patents that aren’t worth the money. Delay filing your patent can allow startups to understand customer needs and better understand the underlying business model. This will increase the likelihood of having a patent that covers the “why” and “how” of the customer’s need. Moreover, delaying your patent filing may also lead to an improved product.
In addition to reducing competition, filing early for a patent has other benefits. Patents are regional, and they only stop competition in the country in which they’re filed. Because of this, startup inventors should consider filing for patents in several countries to protect their invention against infringement. Since patents have different laws and standards, a granted patent in one country doesn’t necessarily mean it will work in another.
VCs invest in startups with patents
Why do VCs invest in startups with patents? This question is often asked in the startup community, and a recent study has shed some light on the subject. In their study, Hsu and Ziedonis examined the experience of 370 U.S. semiconductor startups that had received VC funding. In this paper, we’ll briefly discuss the significance of patents in VC financing. This study is an important first step in understanding the impact of patenting on startup valuation.
Patents do not protect unprotected IP. They merely prevent others from using the invention. VCs want to see proof that the company owns its IP, is executing it, and is generating revenues from it. In addition to patents, the company must have strong legal protection and a history of invention disclosure. Having a patent will not guarantee VC investment. And if it doesn’t, the company will never make it past the startup stage.
While startups don’t always need to own a patent, those with valuable intellectual property protect their market space. No VC wants to invest in a startup with a competitor who may steal their idea without paying. A patent, in contrast, gives the startup the protection it needs to stand out from competitors. A patent can be an excellent asset when seeking VC funding. But if you’re not sure whether patents are important for your startup, consider the costs associated with protecting it.
Getting a patent increases exit valuation
The patent system makes sense for startups. It provides an effective barrier to competition that will last for at least 20 years. It also offers a means of asserting exclusive statuary rights against competitors and copycats. In addition, patents protect startups from the risks of copycatting other people’s ideas. And while patents aren’t essential for exit valuation, they can significantly increase exit valuation.
In fact, patenting a startup can increase its valuation by as much as 30%. The study found that patenting a startup significantly increased the probability of exiting voluntarily. In addition, patenting reduced the probability of bankruptcy and improved the odds of a merger or liquidation. It also ensures new firms obtain a competitive advantage and can pursue a successful exit strategy in markets for ideas. It concludes that the patent premium is a valuable investment and that policymakers should focus more on creating innovative firms with patents.
In addition to the valuation boost, patenting a startup increases the probability of external funding. However, the empirical evidence for the role of patents in startup valuation is limited. Most studies that focus on later-stage financing of well-recognized startups find that patents primarily serve as signals of quality, and they are not necessarily indicative of success. Moreover, after a startup has secured funding, information asymmetries will be smaller, and patents will be less valuable.
Filing a patent is easy
The first step to achieving patent protection for a startup’s invention is to file a patent application. By filing a patent, a startup can retain ownership of its new ideas and potentially negotiate better intellectual property terms with clients and investors. This doesn’t mean that it has to create a fully-functioning prototype or have a fully-developed product. As long as the main ideas of the invention are clear, the startup can file the patent application.
Another common mistake made by startups is failing to keep their patentable concepts confidential. US patent laws give an inventor one year from the date of public disclosure to file a patent application. The same is not true for foreign patent laws. By applying for a patent, a startup can protect its idea in more than one jurisdiction. A patent can also significantly boost a startup’s value. For this reason, many investors will be looking for proof that the company has taken reasonable steps to protect its invention.
Although patent laws become increasingly complicated each year, startups should not overlook the benefits of patent protection. In addition to giving startups a distinct advantage over competitors, a patent gives them the right to exclude others from making, selling, or importing their invention. As such, startups should consider patenting their innovations as early as possible. However, startups should keep in mind that patent laws in most countries require startups to file for patent protection prior to the disclosure of their inventions. Canada, however, allows startups a one-year grace period after that.
Getting a patent boosts probability of attracting venture capital by 53 percent
Getting a patent improves a start-up’s odds of attracting venture capital by 53 percent. Potential start-up investors will take into account the expected effective patent terms of molecules in development and the strength of a startup’s patent portfolio when considering the investment opportunity. In addition, patents are an important source of credibility. Investors will look for startups with a patent portfolio that is managed effectively.
After the first patent is granted, the subsequent ones have a less obvious impact on startup growth. However, the approval of a second patent does increase the number of subsequent patents by 49.8 percent. The pattern repeats with the third patent. The value of a patent also changes over time. Getting a patent allows a startup to innovate and embark on a high growth trajectory.