Your Startup Needs IP Capital

By Rodger Sadler

Rodger-Sadler_2If you run a small business – and a tech startup in particular – you live with the risk that you could, at any time, fall prey to bigger, better-resourced competitors. Why? Because most startups lack the resources and experience required to protect and develop their innovations.

Aspects of the 2011 America Invents Act only made the problem worse. Under the AIA, patent rights for an innovation go to the first to file for a patent – not the first to conceive of the innovation. This change creates races to the Patent Office that small business startups, who lack the IP resources of their larger rivals, typically cannot win.

Our goal at Cote Capital is to level the playing field. As career IP capitalists and longtime IP trial lawyers, we give startups the opportunity to build their own IP ecosystem portfolios so they will have the protection and peace of mind necessary to compete with larger companies and grow their startups into successful businesses.

Strengthen Your IP Assets to Strengthen Your Business

To reach its full potential, a startup requires more than just venture capital. It also requires IP Capital – an investment that protects the startup’s innovations (i.e., patents, trade secrets, copyrights and trademarks).

Like a traditional venture capital firm, an IP Capitalist (Cote Capital is the first) invests money in startups. But the IP Capitalist goes farther by providing entrepreneurs with the sophisticated big company IP expertise they need to succeed.

When picking startups to invest in, a venture capitalist typically looks for startups in high-growth markets with differentiated products and services and strong leadership teams.

An IP Capitalist strengthens these picks by investing in startups that also possess innovations that can be protected with IP rights and a sufficiently wide IP landscape to ensure that the scope of IP rights can be as broad as possible.

In other words, the IP Capitalist adds additional value by identifying startups that have protectable innovations in markets that are not already crowded with other incremental innovations.

This helps ensure that the differentiation that makes a startup’s products or services unique can be protected by broad IP protection, enabling the startup to dominate its market as it grows.

Two Growth Engines that Augment One Another

After investing, venture capitalists typically help startups grow by assisting them with growth-oriented business plans, and by providing targeted expertise within the startups’ product/service sectors. Their goal is to develop the startups into successful product/service companies that will drive high valuations at exit.

The IP Capitalist adds fuel to this model by working with startups to develop and execute an IP strategy that ensures their innovations are protected, and providing the startups with the IP resources (e.g., IP strategists, IP directors, patent prosecution attorneys) best suited for the startups’ particular businesses.

This allows startups to fully leverage their IP assets through protection and development, driving even higher valuations at exit, and shorter times to exit.

The Bottom Line

IP protection and development should be a no-brainer for startups.

According to a recent MIT research paper, the likelihood of growth and success for startups that apply for patents is thirty-five times higher than for startups who don’t apply. And the U.S. Patent Office, in a recent working paper, reports that patent approvals “help startups create jobs, grow their sales, innovate, and eventually succeed,” and increase the likelihood of the startup going public or being acquired.

Much has been written about the negative impact IP (patents in particular) can have on startups because they are easy targets for better-resourced competitors. IP Capital investments, and IP Capitalist expertise, help level the playing field for startups to ensure they enjoy all the benefits sophisticated IP protection provides.

Rodger Sadler is Managing Director, Strategic Partnerships at Cote Capital.

Cote Capital focuses on making IP capital investments in early stage emerging companies.