Those who are not familiar with patents often have a misguided belief that patents are only used to sue infringers. This is not true. In the hands of a skillful businessman, a patent portfolio is much more than a one-trick pony. A good patent can derive value in many ways. So, what is a “good” patent anyway? Simple. A “good” patent is a patent that effectively serves its strategic purpose. One example is building a patent portfolio to attract investors.
Patents can help raise capital
We counsel many start-ups. Most of them have the same critical need–raising capital. Anyone who has ever seen an episode of Shark Tank has had a glimpse as to how this process generally works. Usually, investors have many different investment opportunities. Which company do they choose to fund? The one that presents the lowest risk and the highest potential reward. A strong patent portfolio can help on both fronts.
First, when a start-up has a patent portfolio, investors are less concerned with a possibility that a much bigger and more resourceful corporation will enter the market with the same product and will simply put the start-up out of business. In this manner, patents lower the investor’s risk. Second, most seasoned investors understand that patents are granted only for the most innovative technologies. For this reason, a patent portfolio can demonstrate a high potential reward. Furthermore, a patent is a badge of honor that indicates that a start-up understands the business world and has both the talent and the leadership needed to succeed.
In our experience, for most investors, a strong patent portfolio is a threshold issue when deciding whether to fund a start-up. A start-up with no patents will usually face a steep uphill struggle when trying to raise capital. In most cases, no patents means no funding.