Relevance of patents for early stage startups
Updated: Aug 12, 2019
Are startup patents of significant relevance for raising seed funding?
During Startup Ignite’s Startup Social #7, I had a privilege to be on the panel discussing relevance of startup patents for early stage startups. It was a great discussion, organized by startup cause champion Amu Fowler, moderated very well by Kevin Ringham. Also, such events do not even become a possibility without so many other volunteers and sponsors. I learned a lot from other panelists within those 30 minutes.
Here, I am sharing my thoughts and some of my learnings from that wonderful evening, in Q&A format.
Are startup patents of significant importance in pursuing an angel or seed funding?
Though this may be a requirement for certain industries (Biotech, most Hardware solutions), from my experience, having a filed patent is not a real requirement for raising angel or seed funding. At very early stage, while we are still validating problem and an initial solution, and the available funds are tight, it might not make much sense to spend time and dollars on patent filing.
However, being ready to talk about your solution and whether you think there are patentable parts to your solution is certainly good idea. Understanding and able to clearly articulate it, shows to a perspective investor that you have thought of your solution, you have looked at the competition, and have decided to either defer the patenting process OR have decided that your execution strategy would get you where you intend to go without patenting the solution.
You can always look at the portfolio of venture firm you are trying to raise funds from, to understand their funding thesis and understand if they would care about the patent or rather fund a solution, team and execution.
Even if I do not file a patent, does writing a patent help in anyway?
While filing patent may not be very useful at an early stage, writing a patent application is perhaps much more useful. Writing a patent application would require you, assuming you are serious about it, to research existing patents in your area thus revealing many of your current or future competitors OR those who might sue you for infringement later. This is basically SWOT analysis for you, if done right. It will also force you to critically think about your own solution, and might even force you to pivot well before you spend any meaningful dollars building a solution.
Did any of the big companies file patent before getting off the ground? Or was that a later event?
1. I can’t find any evidence that Facebook did anything in patent terms before getting some real traction. Neither can I see if Amazon did. After all Amazon was nothing more than a website selling books, isn’t it? I could only find first patent they filed in 1995 related to how to send credit card data securely over internet – “Secure method for communicating credit card data when placing an order on a non-secure network”.
When you are bootstrapping / raising only Friends & Family round, does it even make sense financially to spend those on dollars on patent filing?
If you look at many big companies, they had no money at early stage, many times starting from garage, school dorm, second bedroom. They did not even have money to properly pay anyone and sometimes no place to live. This is very true for majority of new businesses out there. IP is a luxury and most new businesses simply cannot afford to obtain at the early stages.
Is execution a better strategy than startup patents?
Almost always for a seed stage startup, execution is better strategy. At that stage, while a startup is still looking for problem solution fit, and you do not know what will your customers end up buying OR forcing you to change your solution, any dollars used for patenting a solution might – well be – wasted. If the solution is so good that customers are lining up to pay, then there is no need for patents anyway.
If you did the homework of researching solutions out there, you should have discovered existing patents. Even in that case, perhaps either licensing or may be partnering with the patent holder might be cheaper. All options should be exhausted before going to patent room – as they – all diplomatic options should be exhausted before going to war.
Also, contrary to popular belief, a patent does not protect your technology from being infringed upon by a competitor. It merely affords you with legal recourse in an event that someone does.
And as a kicker – Statistics show that up to 97% of patents generate less revenue than they cost to obtain. Only a fraction of them have any meaningful world changing impact.
Do patents make founders overconfident and thus narrow minded?
I am not so sure about that, but I suspect having a patent makes you focus on executing what is in the patent, since you are thinking that you have a sort of monopoly, at least for the solution you patented. If you are not careful and watching sidelines, you might lose sight of fringe solutions that might overtake your patented solution.
What about patenting academic / cutting edge tech like how to grow food on Moon? How to harvest energy from noise of cars?
Yep, those would be certainly solutions that would be good candidates for patents. There are patents out there for wireless charging using sound waves for example, drones delivering fuel for the cars. Any cutting-edge research coming out of academia might need to be patented, even before you can go ask for funding. That is understandable because if you are academia, you are interested in putting patents against your name for securing future grants for exploring the space further OR for Academia to Business technology transfer. Also, I suspect in many cases investors are hedging their bets against great execution if there is already a patent in the mix, more so for startups coming out of academia.
When does patenting make sense then?
In certain sectors, it might be a requirement to even get a foot in the door of an investor, including Biotech, Hardware, Cryptography.
Also, if a solution is 10x (10x cheaper, 10x faster, 10x better), protecting that would be a good idea, if that solution would go into market as hardware product.
Lokesh Kumar is a longtime technologist who has worked for Comcast and Wireless Matrix. He is currently co-founder of Urgent.ly and serves as the company’s VP of Technology.