If you’re a start-up having a tough time raising money, you’re not alone. Many start-ups are not successful in attracting investors. One of the biggest reason is failing to tell their IP story. An IP story is even more important if your start-up doesn’t have a track record.
Research studies confirm that startups with IP are more attractive to investors,tend to grow faster, have more revenue options, higher valuations and better exit opportunities. One study by Ocean Tomo found that startups with IP received second round financing 84% of the time, while non-IP startups got second round money only 50% of the time.
Your IP attracts investment in your startup by helping cut risk and confirming customers and markets for your future revenues. A recent example is a start-up with a patented translation technology. They specialize in translation services for large corporations, and its customers include Proctor & Gamble and Yokohama rubber. The combination of its patented technology and large corporate clients made it attractive for investors, and they received over $10 million in funding from a private equity fund.
Your IP story explains your IP and links it directly to the value it provides your start-up. It tells investors about the expected profitability of your startup and your plan for leveraging your IP to maximize your opportunities for commercial success.
Investors want to know what your IP is and where it’s going, and if you’ve got the management ability to successfully commercialize the IP. Most important, investors want to know if your IP works, there’s a significant market for it, that customers really want it, how it solves their problems and why it gives you a competitive advantage.
Here’s some key parts to include in your IP story:
- What types of IP your company owns and its protection status (pending or registered). Remember your IP is more than just your product service or technology. Some of the most valuable parts can be your trade secrets, or know-how such as your manufacturing process.
- How your IP provides value – what’s the price/value proposition? Does your IP deliver higher margins, lower costs or better quality? Does it differentiate your products or services?
- How it will be commercialized – besides selling it direct, are their other markets or applications that can be licensed to generate other revenues?
- How does it secure your competitive advantage – what sets it apart from the competition and is it sustainable?
- Who’s responsible for managing the maintenance and development of current and future IP?
As a startup, your most valuable and only asset is your IP. It’s the source of your competitive advantage, the basis of your income, and in most cases, represents the bulk of your startup value. Your IP is directly linked to the future success and revenues of your start-up and it’s critical that you make sure you clearly communicate this to potential investors.
Rand Brenner is an IP professional whose passion is helping inventors, startups, and businesses of all sizes use licensing to turn their IP into income-producing products, services, and technologies. His decades of experience run the gamut from medical devices to food technology to consumer products. He’s licensed some of the biggest Hollywood entertainment blockbusters including the Batman Movies (1 and 2), and the number one kid’s action TV show, the Mighty Morphin Power Rangers. Rand speaks about licensing and is a featured speaker at investment conferences, trade shows, colleges and startup events. He’s a published writer with articles appearing in several prestigious trade magazine including The Licensing Journal, Intellectual Property Magazine, and License India. Rand also mentors at the Cal State Fullerton School of Business and Economics and is a judge for their startup business plan competitions.