5 Common startup IP mistakes
Intellectual Property is usually low on the list of priorities for startups. But founders shouldn't be so fast to write off the importance of IP, as it can prove to be an essential building block for growth, investment, and even acquisition. If you take a look at many innovative and successful start ups you will most likely find that they started patenting early, and have a strong hold on their IP portfolio. Here are five of the most common misconceptions we hear from startup founders when discussing intellectual property.
1) "My startup has nothing worth protecting"
When a founder makes this statement, it is extremely hard to convince them otherwise. But what most startup founders don't realise is that intellectual property is not just limited to patents.
Your company name, product names and logos can be protected by trademarks. There are also lots of forms of unregistered IP, including copyright (which may apply to company brochures, website content and other literature), licensing and partnership agreements, and database rights associated with your company data, as well as any trade secrets or know-how you have developed. Intellectual property in should be recorded and founders need to have a plan in place to ensure all forms of IP are appropriately protected.
2) "All I care about right now is getting funding"
In order to secure funding, investors will conduct extensive due diligence, including looking at your startup's intellectual property. Investors are much more likely to consider your startup is suitable for investment if you have an intellectual property strategy in place.
The thing to bear in mind is that it is not only about protecting at this stage, it is about differentiating your company from every other startup seeking funding. Owning the right IP proves that a company is innovative and is able to differentiate itself from competitors.
On the other hand, a company that has a number of disjointed, unrelated patents may cause alarm bells to ring and provoke further investigation. It’s good, therefore, to have the IP house in order, especially if the goal is to attract investment.
A robust patent strategy also reduces the risk of underpricing, especially as patents will provide investors with some level of comfort regarding a start-up’s defensive capabilities, while also providing insight into a company’s future product pipeline.
3) "We can think about intellectual property when we're ready to exit"
This is another common stalling tactic for startup founders to use. While your exit strategy may seem a long way off, now is the time to put the foundations in place to make sure that nothing will halt your plans when the time to discuss acquisition or IPO comes along.
It’s absolutely crucial to be ready for M&A approaches with an extensive list of documented IP assets to hand. This is a far easier exercise to compile this list while the company is smaller and before IP proliferates rapidly.
It’s another advantage to starting the process sooner rather than later. There is also the added advantage that carrying out an IP audit exposes any weaknesses in your IP portfolio at a much earlier stage, when problems will be easier (and less expensive) to address.
4) "Patents are so expensive, it's just not worth it!"
Yes, patenting your ideas and products can be costly in the short term, especially when you consider registering your IP in multiple territories and factoring in renewal fees - but you need to think about the bigger picture.
In Europe, the acquisition deal value is generally four times higher for companies with European patents than those without, according to research by Antti Saari of the Aalto University School of Economics.
Taking a financial hit can be painful at the very beginning, but by failing to think about IP early on, you may be cheating yourself out of a bigger company valuation further down the line. Think of your investment in IP like an insurance policy that will help to look after you later on.
5) "I don't need to focus on IP right now. I need to be focusing on getting customers"
Acquiring customers is always a priority for startups, but it's difficult to emphasise how important it is to secure and assert your right to develop, manufacture and distribute your products and services, now and in the future.
Addressing issues around freedom-to-operate (FTO) and having an IP risk mitigation strategy will reduce distraction from the primary focus of ensuring a smooth route to market for a product. This will mean that you can focus on customers with a clear head, knowing that you are not exposing your company to the risk of costly litigation.
We were delighted to welcome Jon Calvert, Managing Director of ClearViewIP to present our most recent PatSnap webinar. Jon focused on the value of IP within startups and it explores the misconceptions discussed here in more detail. You can watch the recording by clicking the image below.