Well, startups with at least one patent tend to have a valuation that is at least $1 million higher than without the patent. Indeed, each additional patent can also add $1 million to a startup’s valuation all by itself. So, $1 million is one way to measure how VCs value patents.
But if your startup gets funding because it has a patent – and your rival startup in the same technical field and market area doesn’t get funded because it doesn’t have a patent – then the value of a patent to the VC is 100%. Of course, the patent is then worth everything to your startup.
But the market should be the judge of patents, you say? No problem – at the time of IPO, the vast majority of software startups – and nearly 100% of hardware startups – had US patents. In fact Facebook didn’t have enough patents before its IPO and had to quickly run around to try and scrounge some patents together. Fortunately for Facebook it was able to buy the patents of an extinct tech dinosaur called AOL – but that’s a risky strategy.
Furthermore, a majority of startups get the most value from patents in earlier stages of funding, when patents can be worth even more than $1 million – increasing the value of a startup by as much as 30%!!!
So patents increase your startup’s valuation, especially in early stages – when they may be the only real asset that your startup has (no, the ping-pong table does not count!). If something goes wrong, the VC can sell the patents to get some of the investment back. That is why patents are so important to your startup and why VCs value them so highly as assets.