Patents Increase Your Startup's Lifetime Viability
Abraham Lincoln was the only US president to hold a patent. His theory on patents still holds true today.
“The patent system… secured to the inventor for a limited time exclusive use of his inventions, and thereby added the fuel of interest to the fire of genius in the discovery and production of new and useful things.” – Abraham Lincoln
Lincoln, of course, knew nothing about software patents or the complicated hardware patents of the 21st century. These are the patents that add the fuel of interest to the fire today. The right patent not only makes a startup investable but it contributes to the profitability and longevity of the company.
A paper published in late 2015 by United States Patent and Trademark Office (USPTO) followed almost 46,000 first-time patent applications filed since 2001 that received a preliminary decision by 2009 and a final decision by December 31, 2013. 32.7% were patents for the IT sector, 18.7% were for the pharmaceutical and biochemical industries, and the remaining 48.6% were for other industries. Almost 67% of the applicants received patents. The results of the study encourage you to file a patent.
Investment in a startup with inexperienced founders by venture capitalists after filing a patent increases in the seed round by only about 1%. However, the chance of raising capital in a second round increases by as much as 46.7%. The second round venture capitalists rely on the patent and the fact that initial investors were willing to invest. After the second round, the effect of patent approval on access to venture capital disappears.
As for job growth, the study estimates suggest that the approval of a start up’s first patent application increases its employment growth over the next five years by an average 36%.
Sales grow by 21.9% in three years and 51.4% in five years. In addition, the average time successful first-time applicants are acquired is 3.3 years or they go public 4.9 years after the USPTO gives a preliminary decision. A patent grants more than double the probability that a startup is eventually listed on a stock exchange
A first patent grant also has an effect on the ability of a company to keep innovating, increasing the number of subsequent patents the firm is granted by 49%. The subsequent patents are more complex.
The study concluded that “patent approvals have a substantial and long-lasting impact on startups: firms that receive their first patent create more jobs, enjoy higher sales growth, innovate more, and are more likely to go public or be acquired.”
Lincoln’s patent, #6469, for a device to lift boats over shoals, was never manufactured. Before he became president, Lincoln delivered lectures on discoveries and inventions.
“Man is not the only animal who labors, but he is the only one who improves his workmanship.”
Today a patent on your labors is good for you personally, your business, and your employees. A patent needs to cover you internationally. If you don’t file in enough countries, your competitors will be able to steal your idea. If you know nothing about patents, the patent process can be confusing. Even the government paper discussing patents uses words and phrases like plausibly exogenous variation, Heteroskedasticity, endogeneity, and interquartile.
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