A venture firm wanted me to value a company they planned to invest $17 million in. The company had zero revenue but the Founder has eight patents. Made me think about how important patents are for company valuations. They are a promise for protecting a company’s future.
Investors and buyers always ask if products have patent protection. That is because patents lend credibility to a product.
Let’s see what a patent is worth…
There are over 3 million patents granted by the US Patent and Trademark Office with about 350,000 new grants each year. IBM alone has over 90k patents. Including attorney fees, a patent can cost about $50k to register. No wonder this is a booming area of the law.
My colleague and Silicon Valley patent attorney, Dr. Steven Colby, will share why patents are crucial for start-ups and growing companies. All you Steve…
- That is a really important question and I see a lot of wrong answers out their founders will say something like oh we have a patent application filed, so we don’t have to worry about the competition that’s the wrong answer to give an investor when the fact is that it’ll be three to five years before their patent application turns into a patent and then it could cost millions of dollars to enforce but cat patents can be very important I work in the environment of Silicon Valley startups where companies can go through multiple rounds of funding here patent is important from a point of view every time companies raises money they do so at a valuation that determines how much the equity money costs them the better the patents the better the valuation. As a patent prosecutor that writes patents for startups. My goal is that my work on their air patent portfolio pays for itself every time.
- Money is raised and especially on later rounds and the exit at these times patents can make a really big difference. One way to view startup patents is as a multiplier a good patent portfolio can have a multiplying effect on the underlying value of the business it can increase at 10, 20, or even 50% of course this means that if the business is not worth much then the patents give you a multiplier or something really close to zero. The point is that if patents are usually much more valuable when associated with a good and successful business and a business with good IP is worth more than one without, in my career, I have seen a couple of times when the patent portfolio was a principal factor in a successful exit. My purchaser had a choice between two possible acquisitions. They purchase my client for hundreds of millions of dollars instead of a competitor in part because my client’s IP portfolio was much better.
- One more question that startups ask themselves is how they decide what to patent well if you want to build real value there has to be a well-executed strategy in place the trick is to focus on the things that really sell a company’s product and services. Those are the things that a company customer wants, the things that drive them to the company patent should make the sales and marketing team really happy. Those with winning portfolios look at the product or service features that help them sell and then the patent underlying technology that supports those features. I am less concerned about what engineering thinks is really cool than I am about what really turns on sales and marketing. Thank you back to you, Bharat.
Thanks, Dr. Colby. Great to have you…
Tell me if you have heard any of these before –
- Reserve domains and social media account for your company and products so your online reputation is protected.
- Hire people who build stuff on their own time, just for fun.
- These are more guidelines than actual rules and will help you understand why patents are so valuable.
The simplest way to value patents is to follow these simple FOUR STEPS:-
This will give you an approximate value of your patent. Of course, this is not an absolute number, but it is a good starting point.
In today’s world of advanced technology and brainpower. Patents are no different than any tangible asset like gold or oil. They can be created, need protection, and can be monetized.
Paraphrasing Bill Gates – If people understood how patents are granted, when most of today’s ideas were invented and patented them, the industry would be at a complete standstill today.