Written By: Christopher Chiavatti (IP Lawyer) & Ian Anderson (Law Student)
New research from PitchBook™ indicates that patents have a strong correlation with the ability of startup or early-stage companies to secure financing and investment. The research separates companies into two distinct groups: those with granted patents and/or patents pending (“patent companies”), and those without patent activity (“non-patent companies”). PitchBook™’s analysis focused on key financial markers that distinguish patent companies from non-patent companies, most notably: deal size, exit values, deal flow, and valuations.
Deal Size
In the last decade, patent startups received deals 40% to 60% larger on average than non-patent startups. This held true for each stage of a startup/early stage company.
Exit Value
Patent startups accounted for 78.6% of venture capital exit value, despite accounting for only 24.1% of exits. Equally striking is the rate at which patent startups entered the public market, which was over five times more than their non-patent counterparts (23.2% versus 4.0%). Patent startups that were acquired by other companies also capitalized substantially compared to non-patent startups, generating median exit values 154.9% higher per year on average. Public listings of patent companies were also 48.2% higher per year on average.
Deal Flow
Patent startups raise more capital than non-patent startups. About 58% of American venture capital went to startups with granted patents or patents pending. This is even though patent startups were the minority, accounting for only 30.7% of the concluded financing deals in that period. Patent startups in the late-stage and venture-growth stage experienced the most benefit, with 63.2% and 80.4% of capital, respectively, going to patent startups over non-patent startups. The data demonstrates that startups willing to invest in patent protection generally find it easier to attract investors and secure funding than their non-patent counterparts.
Valuation
Patent-seeking startups are generally valued higher than non-patent-seeking startups. The angel round demonstrates the largest difference, with patent startups receiving an average difference in median valuation almost two times (93.2%) larger than their non-patent counterparts. Late-stage startups also benefitted heavily from patent activity, receiving an average difference in median valuation 51.2% higher than non-patent startups. Startups that initiate patent activity between financing rounds generally benefit from the largest round-to-round valuation increases. Thus, investing in IP can quickly build cumulative advantages.
Conclusion
Protecting your IP as a startup or early-stage company is a potentially transformative step toward securing financing and entering the market. For more information about how an IP strategy can benefit your business, contact one of our experts at BRION RAFFOUL LLP today!
