A recent study1 confirms the strategic importance of intellectual property for investors and start-ups. A new publication from the European Patent Office (EPO) and the European Union Intellectual Property Office (EUIPO) shows that filing patents and trade mark rights for start-ups is significantly more likely to secure venture capital funding. Venture capitalists also benefit considerably because, according to the study, which is based on data from European start-up activities over the last 20 years, the probability of a successful exit is twice as high if the start-up has registered patents or trademarks.
In the start-up sector, every investment is a bet on the future. When private equity companies invest in start-ups, non-monetary aspects are also important in addition to financial factors when evaluating an investment decision. The criteria applied by investors are usually of an economic, technical, social or legal nature, but can also be based on strategic considerations.
Applications and grants of patents, trademarks and other IP rights enable investors to evaluate the achievements to date and assess the prospects for future success. The patent law and business assessment of the registered or existing IP can provide important insights into the value and quality of the underlying technology, utilisation possibilities and market potential. A strategically structured IP portfolio can increase the probability of success of an investment and thus the profitability of venture capital financing. If the start-up fails, patents, designs or trademarks represent a lasting company value that can be sold or otherwise monetised.
Benefits for start-ups
Registering patents and trade mark rights in the early stages is a crucial step in attracting investment from venture capitalists.
In the seed or early growth phase, start-ups that have registered trademarks are 4.3 times more likely to be financed; start-ups with patents are even 6.4 times more likely to be financed. The start-ups analysed in the study that have registered both trademarks and patents even have a 10.2 times higher chance of being financed in the seed and early-stage phase. They were also able to secure higher start-up financing. The filing of European patent and trade mark applications is associated with an even higher probability of subsequent VC financing.
In the early stages, investments are particularly frequently made in start-ups in the fields of artificial intelligence, biotech, data analysis, navigation services and finance. Biotechnology is the sector that is most successful in subsequent financing rounds. More than 3% are financed there in the late stage.
The biotechnology sector is also a leader in the registration of intellectual property rights. Almost half of the young companies in the biotech sector have registered patents or trademarks. It is not surprising that patents are predominantly used in technological and scientific fields. Anyone who invests a lot of time and resources in the development of sophisticated technologies and wants to build their business model on them is well advised to protect these developments with IP rights and thus secure their own exclusive utilisation on the market. In contrast, trademarks are mainly used in the financial sector, software industry or the food sector. In these sectors, too, other property rights offer opportunities to improve and defend one’s own market position. You can read an interesting example of the strategic use of patents in the food industry in our article on patent protection for ice lollies.
The proportion of start-ups that own intellectual property rights increases with their further development. While only 28% registered a trade mark and 10% a patent in the seed round, the figures in the early-stage phase are already 53% and 28% respectively. Of the start-ups that achieve late-stage financing, 72% have registered a trade mark and 44% a patent. Most of these successful start-ups utilise European patents (92%).
Owning European patents and EU trade mark rights gives start-ups even better investment opportunities compared to national property rights. But whether at national or European level, the earlier you protect your intellectual property, the better. The start-ups that received seed financing received higher amounts if they had registered a trademark or patent before the financing round.
Conclusion
The findings of the study impressively show that intellectual property plays a key role in the world of start-ups. Registering patents and trade marks is not just a legal step for start-ups, but a strategic move that can open the door to funding and long-term success.
- Intellectual property serves not only as a protective factor, but also as a catalyst for innovation that promotes the transfer of knowledge and drives the development of new technologies and business models.
- Start-ups that apply for patents and trade mark rights in their early stages are much more likely to attract capital from venture capitalists and thus accelerate their growth path.
- Investors also benefit considerably if start-ups have patent and/or trademark rights, as this significantly increases the likelihood of a successful exit.
Whether you’re an aspiring start-up or an investor looking for promising opportunities, the right intellectual property strategy can make all the difference. Our experienced team is at your disposal to support you in designing and implementing a target-oriented application and IP strategy.
