As a patent attorney with over 20 years working with startups from launch to IPO, my conclusion is that IP and patents can be valuable assets for a company because they can provide a competitive advantage, generate revenue, build brand recognition, create barriers to entry, provide legal protection, protect innovation, and attract investment which all contribute to increase a company’s valuation.

Patents can protect the business idea from copyists for 20 years and are, therefore, provides a clear competitive advantage for startups. Read more below on how to show investors of the values of patent protection.

Startups may need patents for a number of reasons, some of which include:

Why startups need patent protection

Startups may need patents for a number of reasons, some of which include:

  1. Competitive advantage: Patents can provide a startup with a competitive advantage in the market by giving the startup exclusive rights to use its technology. This can help the startup protect its market position and increase revenue.
  2. Attracting investment: Patents can be a major factor in attracting investors, especially for technology-based startups. Investors are often interested in startups that have a strong patent portfolio, as it can provide a competitive advantage and protect the startup’s technology.
  3. Licensing opportunities: Patents can also be used to generate revenue through licensing agreements. This can help the startup diversify its revenue streams and increase its valuation.
  4. Barriers to entry: Patents can create barriers to entry for competitors, which can help the startup maintain its market position and increase its valuation.
  5. Legal protection: Patents can provide legal protection for the startup’s technology, which can help it avoid costly legal disputes and protect its revenue streams.
  6. Innovation: Patents can also help startups protect their intellectual property on new products, services, software, process, design, and any other innovation that can be protected by patent laws.

Overall, patents can be an important tool for startups to protect their technology and gain a competitive advantage in the market, attract investment, generate revenue through licensing, create barriers to entry, provide legal protection and protect innovation, which are all crucial elements for the success of a startup.

Protecting Your Unique Solutions

Imagine spending countless hours and resources developing a groundbreaking product or technology, only to find it replicated swiftly by a competitor. Patents serve as a shield, safeguarding your unique solutions and giving you the sole authority to capitalize on them. This exclusivity can be the difference between leading the market or being a follower.

Boosting Your Startup’s Appeal to Investors

Investors are inherently risk-averse and look for signs that a startup not only has great ideas but also knows how to protect and leverage them. A robust patent portfolio signals to investors that your startup is a credible player with a serious commitment to safeguarding its intellectual assets. It’s proof that you’re playing the long game.

Enhancing Your Market Position

With patents, you can deter competitors from encroaching on your territory. This creates a safer space for your startup to grow without the immediate threat of copycats. Moreover, patents can sometimes cover not just a specific product, but also a methodology or process, widening your competitive moat.

Opening Doors to Revenue Streams

Patents aren’t just defensive weapons; they’re potentially lucrative assets. Through licensing deals, you can allow other companies to use your patented technology in exchange for fees. This can be a significant revenue stream, especially if your startup is looking to diversify its income sources beyond direct sales.

Increasing Your Business Valuation

Every startup aims to increase its valuation over time, and patents can accelerate this. They are tangible assets that can be appraised and added to your company’s balance sheet. When it’s time to seek further investment or even consider a company sale, patents can push your valuation higher than a non-patented counterpart.

Encouraging Innovation Within Your Team

Having a patent strategy in place does more than protect; it encourages your team to think innovatively. Knowing that their inventions can be protected and valued makes team members more likely to contribute groundbreaking ideas and more committed to your company’s vision.

Simplifying Partnerships and Collaborations

When entering into partnerships or collaborations, having patents can simplify negotiations. Your partners are likely to feel more confident in your business’s stability and the exclusivity of the products or technologies they are tying their name to. This can lead to more fruitful and expansive collaborations.

Planning for International Expansion

If your startup ambitions include crossing borders, patents can pave the way. With patents filed not only domestically but also in key international markets, you can protect your business globally. This is especially important in tech-driven sectors where scaling globally can happen rapidly.

How to Show Case the value of your patents to investors

Discussing the valuation increase from a patent portfolio with investors can be an important step in securing funding for a company. Here are a few tips for discussing the value of a patent portfolio with investors:

Discussing the valuation increase from a patent portfolio with investors can be an important step in securing funding for a company. Here are a few tips for discussing the value of a patent portfolio with investors:

  1. Highlight the competitive advantage: Explain how the patent portfolio provides a competitive advantage in the market and how it can help the company increase revenue and profits.
  2. Show the potential for licensing revenue: Discuss the potential for generating revenue through licensing agreements and how it can help diversify the company’s revenue streams.
  3. Emphasize the legal protection: Explain how the patent portfolio can provide legal protection for the company’s technology and help avoid costly legal disputes.
  4. Describe the barriers to entry: Explain how the patent portfolio can create barriers to entry for competitors, which can help the company maintain its market position and increase its valuation.
  5. Provide examples of similar companies: Provide examples of similar companies that have been successful in generating revenue and increasing their valuation through their patent portfolios.
  6. Present a plan: Present a clear and detailed plan for how the company will use the patent portfolio to increase its valuation, including steps for monetizing the patents, protecting and enforcing the patent portfolio and expanding the patent portfolio.
  7. Be transparent and clear: Be transparent and clear about the details of the patent portfolio and the company’s strategy for monetizing it.

Overall, discussing the value of a patent portfolio with investors requires highlighting the competitive advantage, the potential for licensing revenue, the legal protection, barriers to entry and providing examples and a plan of how the company will use the patent portfolio to increase its valuation. Transparency and clear communication will help build trust with the investors.

Create a Narrative Around Your Patents

Begin by crafting a compelling story that highlights how your patented technology is born out of innovative thinking and how it solves a critical problem in a way no one else can.

Discuss the journey of your invention—identify the market gap it addresses, the development process, and the strategic decisions behind the patent filings. This narrative can help investors see your patents not just as legal documents, but as a reflection of your team’s ingenuity and potential market leadership.

Demonstrate Market Exclusivity

Investors need to understand how your patents protect key aspects of your technology that are critical to owning a market segment. Explain how these patents give your startup the exclusive right to produce, use, or sell the innovation.

Highlight how this exclusivity is crucial in keeping competitors at bay and securing your position as a market leader, which can lead to enhanced profitability and a stronger market share.

Connect Patents to Business Goals

Align your patents with your business goals. Show how each patent supports specific aspects of your business strategy, whether it’s entering new markets, enhancing product offerings, or protecting crucial R&D investments. This shows investors that your IP strategy is not just about legal protection, but about driving business growth and achieving strategic milestones.

Quantify the Impact

Whenever possible, put numbers to the narrative. If you’ve already leveraged your patents commercially through licensing agreements or partnerships, share these success stories and the revenue impacts.

If you’re pre-revenue, you can discuss potential market size, estimated market share enabled by your patent protection, and projected revenue. Concrete numbers can make the value of your patents more tangible to investors.

Discuss Future Patent Strategies

Investors are not just investing in your current patent portfolio; they’re investing in your ongoing innovation. Discuss what’s next in your patent pipeline and how you plan to expand your IP to cover future products or technologies. This forward-looking approach can excite investors about the growth potential and the scalable aspect of your intellectual property.

Highlight Legal Strength

Make a point to discuss the robustness of your patents. If your patents have survived oppositions or have been favorably assessed in patent audits, these are strong endorsements of their validity. Strong, defensible patents can significantly mitigate investment risks associated with intellectual property challenges.

Use Visuals to Your Advantage

Create visuals that map out your patent coverage, showing how they protect various features of your product or technology. This can include diagrams or flowcharts that link patents to specific product features or market needs. Visual aids can help demystify patents and make the information accessible and impactful during investor presentations.

Advantages of early Patent filing

Filing patents early on can enable a company to have frank discussions with investors and suppliers without fear of losing their intellectual property, even if they don't sign non-disclosure agreements (NDAs). Here are a few reasons why filing patents early on can be beneficial:

Filing patents early on can enable a company to have frank discussions with investors and suppliers without fear of losing their intellectual property, even if they don’t sign non-disclosure agreements (NDAs). Here are a few reasons why filing patents early on can be beneficial:

  1. Legal protection: Filing patents early on can provide legal protection for the company’s technology, which can help it avoid costly legal disputes and protect its revenue streams. This can give the company more confidence to share information with potential investors and suppliers without fear of losing their intellectual property.
  2. Competitive advantage: Patents can provide a company with a competitive advantage in the market by giving the company exclusive rights to use its technology. This can help the company protect its market position and increase revenue, which can be attractive to investors.
  3. Attracting investment: Patents can be a major factor in attracting investors, especially for technology-based startups. Having a strong patent portfolio can provide a competitive advantage and protect the startup’s technology, which can be attractive to investors.
  4. Licensing opportunities: Patents can also be used to generate revenue through licensing agreements. This can help the company diversify its revenue streams and increase its valuation, which can be attractive to investors.
  5. Barriers to entry: Patents can create barriers to entry for competitors, which can help the company maintain its market position and increase its valuation, which can be attractive to investors.

Overall, filing patents early on can provide legal protection, competitive advantage, attract investments, create licensing opportunities and barriers to entry that can increase the company’s valuation and allow the company to have frank discussions with investors and suppliers without fear of losing their intellectual property, even if they don’t sign NDAs.

Securing First-Mover Advantage

Early patent filing can effectively secure your position as a first-mover in the market. By protecting your innovation from the outset, you ensure that your startup maintains its lead and can capitalize on the market opportunities without immediate pressure from competitors.

This first-mover advantage can be pivotal in technology sectors where being ahead even by a few months can translate into significant market share.

Building a Strong Foundation for Future Innovation

When you file patents early, you lay a solid foundation for future innovations. Patents can serve as building blocks for expanding your technology in new directions.

Each patent can potentially serve as a stepping stone to further inventive activities, creating a cascade of innovations that are already protected under your expanding patent umbrella. This protective barrier can encourage more ambitious R&D efforts without fear of misappropriation.

Enhancing Credibility and Attractiveness

Early patent filings enhance the credibility of your startup with partners, investors, and customers. They signal that your business is serious about its technological assets and is committed to protecting them.

This credibility can be crucial when you’re seeking to form partnerships or when you’re in discussions with potential investors who value diligent IP management as a key indicator of a startup’s potential.

Facilitating Early Stage Funding

Startups with early patent filings are often seen as more attractive investment opportunities. Investors perceive patented technologies as lower-risk investments because they are protected against immediate competition.

Having patents can be particularly influential during funding rounds, convincing investors of the potential long-term returns on their investment.

Providing Leverage in Collaborations and Negotiations

When entering negotiations or collaborations, having patents filed can provide your startup with significant leverage. Whether it’s negotiating with suppliers, entering a joint venture, or discussing potential licensing arrangements, patents offer a form of currency that can be leveraged to obtain favorable terms.

Setting the Stage for Global Expansion

Early patent filing not only secures your innovations in your home country but also sets the stage for international protection. Many startups overlook the importance of global IP strategy until it’s too late.

By considering international patent filings early on, you can plan strategically for which markets you will enter and protect your technology accordingly, ensuring you don’t face barriers to entry or aggressive competition abroad.

Streamlining Patent Management

Starting your patent filings early can also streamline the overall management of your intellectual property. Early filings can help establish clear procedures for documenting innovations, deciding on filing strategies, and managing IP as a core aspect of your business operations. This structured approach to IP management can save significant time and resources as your company grows.

Criteria for patent protection

Identifying startup inventions to patent can be a crucial step in protecting a company's intellectual property and increasing its valuation. Here are a few tips for identifying inventions to patent:

Identifying startup inventions to patent can be a crucial step in protecting a company’s intellectual property and increasing its valuation. Here are a few tips for identifying inventions to patent:

  1. Evaluate the market: Research the market to identify potential areas of growth and opportunity. Look for areas where there is a gap in the market or where a new technology or product could disrupt the current market.
  2. Assess the company’s unique capabilities: Evaluate the company’s unique capabilities and expertise. Identify any proprietary technologies, processes, or methods that the company has developed that could be protected by patents.
  3. Review the company’s research and development: Review the company’s research and development activities to identify any new inventions or innovations that have been developed.
  4. Identify the company’s core competencies: Identify the company’s core competencies and technologies that are critical to its success. These are the areas where the company has a competitive advantage and where patents can provide the most protection.
  5. Consult with experts: Consult with experts such as patent attorneys or agents to help identify potential patentable inventions and to advise on the patentability and scope of the invention.
  6. Prioritize the inventions: Prioritize the inventions based on their potential for commercial success, their potential to provide a competitive advantage, and the cost of patenting them.
  7. Consider the international market: Consider whether the invention has potential for international market and whether it’s worth to file patents internationally.

Overall, identifying inventions to patent for a startup requires evaluating the market, assessing the company’s unique capabilities, reviewing the company’s research and development, identifying the company’s core competencies, consulting with experts, prioritizing the inventions and considering the international market.

There are three criteria that a product should have to maximize patent protection:

  • The novelty of the invention: The product may not belong to the current state of the art on the patent’s filing date. This also means that the invention has not yet been publicly presented or used for patent application.
  • The inventive step: An inventive step is only given if it is not apparent to the “average person skilled in the art” in the respective field and exceeds their ability. In this case, one speaks of the so-called “inventive step”.
  • Commercial applicability: An invention is commercially applicable if it can be used commercially in any field – in principle, it is about the practical use of the invention and whether a business model can be derived from it.

Patent protection can be fundamentally pursued with consultation and the representation of legal experts. In California, the PatentPC specializes in every domain that covers Intellectual Property. It means the legal matters involving patents, trademarks, trade secrets, and copyright cases.

The legal firm has broad services relevant to patent protection, filing trademarks, contesting unfair competition, protecting trade secrets, and the copyright law. Its diverse portfolio of clients allows the firm to represent clients varying in a wide array of business sectors.

Patent PC also professes a strong company culture and also deals with clients who operate on a stringent budget. Startups are required to file patents protecting intellectual properties and prototypes, which is the firm has a pool of clients ranging from many startups to the big players.

Scaling investments: For technology-oriented startups and medium-sized companies, patents are an essential starting point for starting a business, finding investors, or opening up a new market.

Ideally, innovative companies first patent the core development and then protect all purposes from calmly rolling up the global market. Patent law gives applicants several options for scaling the timing and amount of investment in property rights. It is usually advisable to proceed in stages and at the same time to select the scope of protection skillfully.

Disclose selectively: Companies should protect innovative technical processes and products very strategically. Inventors, founders, and patent experts have to plan precisely what is specifically described in a patent specification and thus disclosed to competitors - and what the startup would prefer to keep secret.

Disclose selectively: Companies should protect innovative technical processes and products very strategically. Inventors, founders, and patent experts have to plan precisely what is specifically described in a patent specification and thus disclosed to competitors – and what the startup would prefer to keep secret.

For products in which software plays a central role, it should be considered whether patent protection is only sought for the parts that ensure good, but not optimal, function. Only a subsystem is then disclosed to the competitors when they register. The real highlight, however, remains hidden from them.

Appropriate patenting: Certain technical developments, such as chemical compounds, can best be protected by so-called material protection. If this succeeds, startups can slow down competitors at almost every stage of the value chain. Building a patent thicket with which your products and any workaround solutions can be protected can be a worthwhile long-term strategy.

For example, we have analyzed patents across various niches such as software patents, medical device patents, electronics patents, Metaverse patents etc.

Protect according to standards: Patents are beneficial when they protect standardized products. Even if such standard-essential patents are subject to some restrictions in terms of enforcement, all standard users must pay license fees to the patent holders. Considerable income can be generated from a large number of users.

The ideas not taken into account in the standard and the patents based on them, on the other hand, are left empty. If standardization projects for innovative products are foreseeable, startups should closely coordinate their participation with patent granting for the products.

Companies in the mobile communications and e-mobility industries are pursuing this strategy, in some cases with great economic success. Negotiations are held in front of a standards institute, for example, which standardized plug shape should enable future electric fuel pumps.

Simultaneously, the participants in the standardization negotiations bring themselves into position with applications for property rights on various connector shapes and additional features.

Make the right choice: You can save a lot of money when choosing the countries in which an invention is protected. A subtlety of patent law also allows the country selected to be expanded gradually.

Startups with software inventions should also consider obtaining protection in the USA. There you will find not only a large software and investor market but also very patent-friendly conditions for your products. Young companies that have applied for a patent on their invention are exciting for investors. However, there are a few things to consider when it comes to patents — both in terms of the application process and costs of application.

Novelty is Your Starting Point

The first criterion for any patent is novelty. Your invention must be new, having no prior public disclosure. It’s essential to conduct thorough prior art searches to ensure that your innovation does not inadvertently infringe on existing patents or has been publicly disclosed in any form, including publications, previous patents, or public demonstrations.

Startups should integrate confidentiality protocols and perform regular patent searches as part of their development process to maintain the novelty of their inventions.

Non-Obviousness Adds Value

Beyond novelty, an invention must involve an inventive step that is not obvious to someone with knowledge and experience in the subject area. This is where the value of a skilled R&D team becomes apparent.

Encourage your team to aim for solutions that not only solve the problem but do so in ways that are not straightforward extensions of existing solutions.

Engaging with patent professionals early in the design process can help identify and refine the non-obvious aspects of your invention, significantly enhancing the robustness of your patent applications.

Utility Underpins Commercial Relevance

The utility criterion requires that the invention is useful for its intended purpose. For startups, this means the innovation must have practical application and must perform as claimed.

This criterion is particularly significant as it ties directly to the commercial viability of the invention. Startups need to focus on developing products that not only meet the utility requirement but also address significant market needs, thereby ensuring that the patent’s potential is fully realized in the marketplace.

Document Rigorously

Maintaining detailed records of the development process can be a game-changer. Documentation should include every experimental result, prototype development, and iterations of the design process.

This not only helps in proving the date of invention in contested scenarios but also in demonstrating the diligence in reaching the final, patentable product. Such records can be invaluable during the patent examination process and in defending the patent’s validity in future legal challenges.

Align Inventions with Business Strategy

It’s crucial for startups to align their patent strategy with their overall business strategy. This means not just patenting innovations, but patenting the right aspects of innovations that have the most commercial potential and align with the company’s long-term goals.

Strategic patenting involves protecting core technologies that will provide a competitive edge and create barriers for competitors while supporting the startup’s business model.

Evaluate the Scope of Protection

Deciding where to file for patent protection is as crucial as the patent itself. If your startup operates or plans to expand internationally, consider filing patents in those countries that are key to your business.

This requires understanding the commercial impact of your invention across different markets and tailoring your IP protection to support your specific business needs and growth ambitions.

Cost Management of the IP portfolio

Building a great IP portfolio can be a costly endeavor, but there are ways to control costs while still building a strong portfolio. Here are a few tips for controlling costs while building a great IP portfolio:

Building a great IP portfolio can be a costly endeavor, but there are ways to control costs while still building a strong portfolio. Here are a few tips for controlling costs while building a great IP portfolio:

  1. Prioritize your patents: Prioritize which patents are most important to your business and focus on those first. This can help you control costs by only pursuing the patents that are most critical to your business.
  2. Conduct a thorough search: Conduct a thorough search of existing patents and trademarks before filing a new application. This can help you avoid costly legal disputes and ensure that your patents are not already taken.
  3. Use provisional patents: Consider using provisional patents to protect your inventions while you are still in the development stage. This can help you control costs while still providing legal protection for your inventions.
  4. Utilize the services of patent agents: Utilize the services of patent agents who can provide cost-effective solutions for preparing, filing, and prosecuting patent applications.
  5. Choose cost-effective countries for filing patents: Consider filing patents in countries with lower costs for filing and maintenance, such as Mexico or Canada, in addition to the US, to control costs.
  6. Use a self-filing process: Consider using a self-filing process, where the company files its own patent application, instead of hiring a patent attorney. This can help control costs, but it’s important to have a good understanding of the process and the law.
  7. Monitor your portfolio: Regularly monitor your portfolio and consider abandoning patents that no longer have any value to your business, this will help control costs in the long run.

Prioritization of IP Assets

A strategic approach to cost management begins with prioritizing the most valuable IP assets. Not every invention or innovation warrants immediate protection. By carefully assessing the commercial potential of each idea and aligning it with the company’s business goals, startups can focus their resources on protecting technologies that have the greatest potential for profitability and competitive advantage.

Staged Filing Approach

A phased filing strategy, such as filing provisional patents before full applications, can reduce immediate costs while providing time to evaluate the market viability of the invention.

During this period, startups can refine their invention, seek potential licensees or investors, and analyze competitor activities. If commercial interest or strategic potential remains high, the startup can invest in converting provisional applications to non-provisional ones, ensuring the final application is well-prepared.

Geographical Targeting

Global patent filings can be prohibitively expensive, so it’s essential to strategically select jurisdictions based on market potential and the competitive landscape. Startups should identify key markets, particularly those where competitors operate or where the startup plans to expand, and focus their filing efforts on those regions. Avoid blanket filings across regions that are unlikely to generate returns or where enforcement will be difficult.

In-House vs. External Expertise

While outside counsel is indispensable for specialized patent matters, startups can achieve significant savings by handling simpler, administrative IP tasks internally.

Training in-house staff to manage IP renewals, maintain documentation, or oversee communication with patent offices can free up resources that would otherwise be spent on legal fees. However, technical expertise should always be leveraged for crucial decisions, such as drafting patent claims or responding to office actions.

Leveraging Government Support

Governments and international organizations often offer grants, subsidies, or support programs to encourage IP development. By exploring and utilizing these programs, startups can reduce their patent filing costs significantly. Some jurisdictions offer reduced fees for startups and small entities, providing another opportunity to manage costs effectively.

Licensing and Monetization

An overlooked aspect of cost management is the potential revenue generation through IP licensing or monetization.

Licensing agreements can offset patenting costs, bringing in immediate revenue while enabling the company to leverage a partner’s distribution or manufacturing capabilities.

Additionally, startups should assess opportunities to divest non-core patents that might hold value to other entities, converting dormant assets into cash flows.

Lifecycle Management and Portfolio Audits

Regular audits of the IP portfolio can uncover assets that no longer align with the startup’s strategic direction, reducing maintenance fees and refocusing investment on high-potential technologies.

Lifecycle management also involves periodically reassessing the relevance and value of existing patents to decide whether to renew or let them lapse, ensuring that the portfolio remains aligned with the company’s growth trajectory.

Integrated Portfolio Planning

Integrating IP portfolio planning into the startup’s broader financial and business strategy ensures that patent-related expenditures are justifiable and aligned with overall corporate objectives.

Founders should seek cross-functional input from marketing, product development, and finance teams to identify where IP protection best fits into the company’s value proposition and to allocate budgets accordingly.

Use Computer Aided Software to control Cost

Computer-aided patent software tools such as PowerPatent can be useful in controlling costs and increasing patent quality when building an IP portfolio. Here are a few ways that computer-aided patent software tools can help:

  1. Patent searching: Patent searching software can help you conduct a thorough search of existing patents and trademarks before filing a new application. This can help you avoid costly legal disputes and ensure that your patents are not already taken.
  2. Prior art analysis: Computer-aided patent software tools can also assist with prior art analysis, which can help you identify and evaluate prior art that may be relevant to your patent application.
  3. Claim drafting: Some computer-aided patent software tools can assist with claim drafting, which can help you draft claims that are clear, concise, and more likely to be granted by the patent office.
  4. Portfolio management: Computer-aided patent software tools can also assist with portfolio management, which can help you organize, track and monitor your patent portfolio.
  5. Cost-effective: By using computer-aided patent software tools, you can save time and money, as they are often less expensive than hiring a patent attorney, and can help you complete tasks more efficiently and effectively.
  6. Quality: Computer-aided patent software tools can also help increase the quality of the patent application and increase the chances of grant by the patent office.

Overall, computer-aided patent software tools can be useful in controlling costs and increasing patent quality when building an IP portfolio. They can help with patent searching, prior art analysis, claim drafting, portfolio management and be cost-effective and help increase patent quality.