Strategies for Intellectual Property-backed startups need not be super complicated. Having acquired copyrights, patents, or trademarks for your intangible assets, you can quickly attract investor interest.
Intellectual Property (IP), particularly patents, are of significant interest to venture capitalists. It will interest you to know that post-COVID, the Intangible Asset Market Value is accelerating and gaining new heights.
Intangible assets have captured an incredible 90% of the S&P500 market value. Trends in European markets are no different, with IPs securing 74% of the total market value.
Results of research published in the journal PLoS talk about how intangible assets play a critical role in today’s business landscape. Intellectual Property (IP), innovation, goodwill, technological skills, know-how, and knowledge carry more value for investors looking for viable projects to back.
The world is transitioning toward knowledge-based economies. Founders that have ideated IP will find that this is the opportune time to start a business. If your startup centers around a patent or trademark, acquiring funding is easily done.
Read ahead for the appropriate fundraising strategies for Intellectual Property-backed startups.
The Ultimate Guide To Pitch Decks
Understanding the Value of Intellectual Property
Intellectual Property defines the broad spectrum of intangible assets arising from innovation, novel ideation, and human ingenuity. IP encompasses original concepts and creative output that innovators must secure with Intellectual Property rights.
Getting legal protection ensures that you have complete control over the use of the intangible assets you develop. That’s how you can monetize them profitably. Entrepreneurs can legally acquire patents, trademarks, copyright protection, and trade secrets security.
These types of intangible assets shape the entrepreneurship landscape, with lawmakers working to raise awareness of the importance of securing IP. Legal protection can help you prevent competitors from using your innovations without authorization and/or illegally copying them.
You’ll get patents to secure an innovation, while trademarks are effective deterrents for copying the company’s brand name and logo. If you’re developing technology, cloud applications, and software, you’ll get copyright protection.
Consider legal rights as a must-have form of insurance. Not only will you protect the brand identity and product design, but you’ll also evoke confidence in investors. Ensuring product-driven traction is yet another positive.
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How Intellectual Property Can Shape a Startup’s Success
The key differentiating factor for any new startup is an innovative business idea that addresses a problem. This problem can be as yet unrecognized or underserved. Or, existing solutions may be ineffective or not economical enough to make sense to the customer.
Founders can bank on Intellectual Property legal safeguards to protect the cornerstone idea that forms the base of their startup. The intangible assets the company possesses add to its value, much like tangible assets like real estate and equipment.
Applying for legal protection typically involves researching existing companies that might have come up with the same idea. Identifying existing copyrights and patents will help you save on the resources you would have diverted toward developing the MVP.
You’ll also avoid the possibility of incurring fines and penalties for infringing on IPs belonging to other companies.
IP protection presents barriers to prevent competitors from replicating groundbreaking ideas, which can dilute your startup’s market position. It ensures that you maintain that distinctive niche that gives you an edge.
Customers use the brand name to identify and recognize products that are good value for money. They’re also likely to prefer your brand consistently and stay loyal when you release new offerings in the market.
Not only will you minimize churn rates, but IPs and trademarks ensure lower Customer Acquisition Costs. Intangible assets can prove to be sources of long-term and regular revenues. In this way, IPs in a startup’s portfolio are attractive features that build up a compelling pitch deck.
Attracting funding for your startup will be easier since the IP reflects well in the valuation process. IPs also indicate the founder’s commitment to innovation and business acumen that is worth backing in the long term. Investors are more likely to offer you funding and mutually beneficial partnerships.
Fundraising Strategies for Intellectual-Property Backed Startups
When entrepreneurs compile a list of potential investors for their IP-backed startup, their focus should be on specific investors. You’ll look for venture capitalists, angel investors, and other financiers that support your particular business vertical.
For instance, startups in the hi-tech or health sciences sector value IPs as currency for developing entire companies. Their business models, sustainability strategies, and projected growth trajectories center around the intangible assets they own.
IP rights and patents give your venture a headstart on the fundraising journey for several reasons.
Keep in mind that in fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.
Higher Projected Sales and Revenues
Startups that have yet to generate sales and revenues must rely on projected metrics to shape their pitch deck. Their financial projections can be much more compelling since their IPs have successfully acquired patents.
Having passed the patent screening process is validation the IP has value and is capable of sales and generating revenues. Aside from converting into products that the company can sell, patents earn a regular income. Their owners can lease or license them for substantial fees and loyalties to third parties.
Startups that lack adequate resources to monetize their IP by converting into actual products can offer licensing for limited tenures. Once they acquire the desired funding, they can move on to building their own product line under their brand name. In this way, they can secure their core assets without the risk of diluting their value.
Franchising is yet another channel for commercializing the IP. These factors add to the potential for long-term and consistent revenue, which is a viable proposition for investors. It adds an element of security to their investment.
Since the IPs have legal protection from copying, the ideas remain unique and original, which adds to their value. Basically, you’ll eliminate the competition by getting protection from rivals replicating the designs.
Since brand names and logos are critical for recognition and customer loyalty, you’ll safeguard them with trademarks. Getting copyrights ensures that competing companies acquire legal authorization before using the creative assets. As a result, copyright owners maintain complete control.
Entrepreneurs can also get protection for their trade secrets, such as customer data and proprietary algorithms. That’s how they can maintain their position in the market and the value of the IPs they innovate.
The total lack of competition indicates long-term accelerated growth. Further, any complimentary IPs and intangible assets the startup develops in the future will continue to contribute to its success.
Patents and IP are Valuable Assets
Investors are typically looking for security and collateral for the money they invest in a startup. IPs represent valuable assets, albeit intangible, that can sell at a premium in the market. In case the startup folds, founders can liquidate the patents and licenses to repay the investment.
This factor enables more effective fundraising strategies for Intellectual Property-backed startups. That’s because they become eligible for debt financing more easily. Although the market for debt financing for IP startups is small, some investors do offer this form of funding.
Building Strategic Partnerships
Startups have the option to enter into strategic partnerships with established companies that add value to their brand name. Founders have an edge at the negotiating table since they can prove their innovations have credibility.
You’ll also indicate your commitment to innovation and dedication to securing the IP assets you own. The intangible, legally protected assets instill confidence in the startup’s future revenue streams.
You can also consider entering into exclusive distribution agreements and rights to drive revenue and growth for the startup. Leverage the better position to negotiate for more beneficial perks from the intended collaboration.
Not just from partnering businesses, but also from investors looking to acquire equity in the potentially profitable company.
Equity Investment in Intellectual Property-Backed Startups
Expect that your fundraising strategies for Intellectual Property-backed startups are likely to be highly successful. That’s because investors are more likely to offer equity funding to such ventures. By acquiring equity, investors get a share stake in the company’s ownership.
The higher the share value, the higher will be the profits they can make on exiting. As a rule, patents have a 20-year term. Investors looking for long-term growth opportunities and profitability specifically look for portfolios that will appreciate in value.
The prospect of backing a startup with an extended edge over the competition, thanks to the patents, is attractive to investors. However, they may be more focused on the quality of the patent than the number of patents or IPs the startup owns.
Looking for more information on how to find investors for your startup? You’ve come to the right place. Check out this video I have created where I explain in detail how it’s done.
How to Secure Your Intellectual Property & Intangible Assets
Intangible assets are crucial for shaping your startup’s success and attracting funding. This is why, founders should know how to secure their assets with legal protection. Here’s what you need to know:
Start By Filing a Provisional Patent Application
Startups with limited resources may not be in a position to carry the costs of acquiring patents. But, if you can initiate the application process, you can delay the costs. At the same time, you’ll demonstrate your research and development progress to prospective investors and attract their interest.
Alternatively, you can consider filing a provisional patent application to the United States Patent and Trademark Office (USPTO). This application locks in the priority date for the IP and materials you’ll present at a later date.
You also have the option to file a non-provisional application within 12 months with a priority claim to the provisional application. If the provisional backs the non-provisional claims, you’ll claim an earlier priority date for the patent approval.
Save On Application Costs
Filing a provisional application will cost you far less than filing a non-provisional application. Further, the preparation costs for a provisional application are also lower. Most importantly, you won’t incur any costs for examination until the non-provisional application is entered.
Founders can also consider filing omnibus patent applications, which include multiple interrelated innovations. For instance, if you’re patenting a specific device, you can also include descriptions of its components. You can also add the various methods of using the invention and the systems that will deploy the device.
Adding extensive details for multiple patent claim sets gives you time to explore each claim. Each claim can be a part of the continuation patent application. As a result, you’ll disperse the prosecution costs, but at the same, take advantage of the earliest priority date.
If you intend to build several inventions, combining the omnibus and provisional approaches gives you that extra edge. Describing these strategies for Intellectual Property-backed startups in your pitch deck indicates to investors that you’ll run a lean and agile company.
Cost-cutting approaches are an additional asset investors appreciate.
Trademark Your Core Branding Assets
Getting federally registered trademarks for your new startup’s core branding assets is also a prudent move. The process is much less expensive as compared to getting patents. However, getting the Trademark (™) can prove to be a valuable asset.
Your startup will acquire the presumption of rights to the mark, logo, brand name, and tagline if you have one. Even if you can’t monetize it right away, it is a valuable asset that could earn you rich returns when liquidated.
On A Final Note!!
Strategies for Intellectual Property-backed startups are industry-specific and unlike other ventures. Maximize your chances for success by hiring and retaining the services of a trained advisor. The right professional will assist you with every aspect of setting up the business.
Business development, recruiting top-notch talent, onboarding and compensation packages, securing the IP, fundraising, marketing, and corporate structuring–are only some of the areas where you’ll need assistance.
Managing the legal intricacies of Intellectual Property and intangible assets needs special expertise. You’ll also need guidance on how to secure the IP, enforce the rights in court, and evaluate the assets effectively. Leasing out the assets to monetize them also needs trained counsel.
Make sure to cover your bases and learn how to value and monetize your intellectual assets efficiently.
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