Here’s another fact that may surprise you: successful startups use patents to increase their startups’ valuation. It has been estimated that patents increase the valuation of a startup by $1 million!
For these reasons, VC consider patents as strong assets. Let’s get down to the nitty gritty number crunching and find out what makes a patent valuable to a VC – and of course how VCs determine that value.
The most valuable patents for VCs do two things: first they protect your startup’s core business – the heart of your startup, your secret sauce. This is the part of your startup that, if you were to lose it, your startup would fail.
Second, really valuable patents also protect your startup’s market space from competitors. After all, you don’t want to do all of the work to develop your startup’s market, just to let all of your competitors in? Without a patent, you might as well invite your competitors into your startup’s market space.
VC’s will absolutely not put a lot of investment into your startup, only to have someone else copy your startup’s ideas and succeed in your market.
Of course, this points out another, more delicate point. Your competitors, especially the big ones, have no interest in being nice to your startup or even in playing fair. If they can steal – ahem, borrow – your startup’s ideas without having to pay for them, they’ll do it in a heartbeat.
After all, the great Steve Jobs himself said “We have always been shameless about stealing great ideas.” And while it might be flattering to have a real genius of the caliber of Steve Jobs steal your startup’s ideas, I don’t think you want that to happen.
Patents block your big competitors from stealing your startup’s ideas – and give you a weapon to fight back if they do. There are ways for even the smallest startups to succeed in a patent battle with big competitors. Just ask Microsoft, which has had to pay out a lot of money over the years to small startups because it kept on stealing their ideas. But many of these small startups had patents, so they could fight back- and win!