Typically, attracting investors is contingent on demonstrating that your startup has secured appropriate intellectual property rights to protect its innovations from unauthorized exploitation by competitors. In many cases, that means your startup must obtain at least one patent on the innovative concept that it hopes to bring to market (perhaps alone or possibly relying on another company, such as an exclusive licensee). Sometimes even better than a patent on the grand vision are patents that cover key components or features that competitors must copy to develop a competing product.
The award of one or more high-quality patents tends to substantially grow the value of a startup, as it signals to potential investors not only a startup that is highly attuned to the market’s needs, but also a reduction in the risk that returns on investments in the startup will be lost to competitors.
More broadly, being awarded high-quality patents can allow your startup to profit by:
- Selling your innovative products at substantially higher prices than competitor’s products lacking the patented innovative concept;
- Licensing others to implement the innovative concept covered by the patents;
- Obtaining cross-licenses from others so your startup can implement concepts covered by their patents;
- Driving infringing competitors out of the market, thereby setting the stage for price increases or sales volume gains;
- Halting imports of infringing products, thereby retaining those sales for your startup;
- Spinning out companies to implement the patented concepts in other markets; and
- Attracting desired employees, suppliers, customers, and/or investors due to the evidence and aura of innovativeness, competence, and/or strength of your startup.
Ultimately, for investors, your startup’s full value can be realized by luring acquirers to your startup’s patent-protected profits, if not to the patents themselves. In some cases, those acquirers might be businesses who are considering integrating your startup’s patented concept into their product, or possibly already doing so without your authorization (i.e., infringing).
So that they can be enticing to and ready for potential acquirers, smart startups continually monitor for companies in their general market who are selling competing or potentially competing products, earning or buying related patents, or acquiring the owners of such patents. When such potential acquirers are discovered, the startup can initiate acquisition negotiations with them. If the negotiations don’t prove fruitful, the startup can weigh how best to address any current or past infringement by the potential acquirer, such as by tapping into the startup’s patent enforcement insurance to fund an infringement suit.