Show Me the IP! Venture Capital Success Based on Patents
|Written by Gene Quinn
Patent Attorney & Founder of IPWatchdog
Zies, Widerman & Malek
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Posted: Mar 12, 2010 @ 2:09 pm
Earlier today Dale Halling, of Halling IP and State of Innovation Blog, brought to my attention an article on the IAM Magazine Blog from a few weeks ago. Joff Wild of IAM blogged about a study conducted by IPVision, Inc., which focused on analyzing the intellectual property positions of over 9,000 US venture capital backed technology companies. The study was conducted with the assistance of faculty at the MIT Sloan School of Management, and not surprisingly determined that there is a strong correlation between intellectual property assets, particularly strong patent portfolios, and success. In fact, the IPVision study shows that VC-backed technology “[w]inners are many times more likely to hold intellectual property than losers.” Further proof that those who due to ideological reasons forgo pursuing a patent portfolio are dooming themselves, and their investors, to an unnecessary uphill struggle right from the start.
According to the IPVision study:
Analysis shows that across all sectors a significantly higher percentage of venture capital backed winners (companies that have been acquired or have gone public) have patent portfolios as opposed to losers (companies that are out of business).
Joff Wild writes:
According to the metrics applied by IP Vision, 86% of the VC-backed winners (ie, companies that are acquired or go to an IPO) they identified had strong as opposed to typical intellectual property assessments. In other words, while a healthy IP position may not guarantee that a start-up technology company is going to be successful, it is going to find it a whole lot harder to succeed if it does not have one. And ,crucially, it is not just ownership of IP that is important, it is understanding the IP that is key.
Those who are anti-patent and against any form of intellectual property rights are sure to be enormously upset by this study, which quite clearly shows the virtues of intellectual property and patents in particular. On the pages of IPWatchdog.com I have from time to time engaged in debates with the anti-patent crowd, and in one particular instance went back and forth with a gentleman by the name of Ian Clarke who professed to be an innovator who doesn’t like patents, particular software patents. He claimed to see no reason for software patents and stated they should not exist. He even went on to say that he is a prolific inventor and entrepreneur who has raised over $15 million in venture capital without patents, relying only on copyright protection and trade secret protection for his software related innovations. See comments at Praying the Supremes Get Bilski Right in 2010.
We got into a heated debate because I proclaimed, and rightfully so, that sophisticated VCs require patent assets and sophisticated VCs do not invest in companies that lack intellectual property portfolios. I explained what everyone in the patent and innovation industries know to be true, which is sophisticated VCs want to know about your patent rights and evaluate them to see if you will be able to exploit a competitive advantage. In fact, none other than Dean Kamen, probably the most influential and prolific American inventor of our time, has repeatedly explained that without patents there will be no investment. Yet, folks like Ian Clarke and others who have a philosophical and ideological aversion to patents want others to believe that success is possible without patents.
This IPVision study quite clearly demonstrates that if you are not pursuing a patent strategy you are unnecessarily making it harder to succeed. Having a patent portfolio does not guarantee success, but is sure makes if far more likely than if you do not have a patent portfolio. Of course, having a strong patent portfolio is best, and that is indeed what successful and sophisticated VCs are looking for when they evaluate investment opportunities.
As Wild explains:
So, if you are a VC and you are not looking carefully at your portfolio companies’ IP positions and strategies, the chances are that you are missing an important trick. While if you are part of the management of a company looking for VC backing it would be as well to have a good IP story to tell in your documentation and when you are sitting opposite potential investors at the negotiating table.
The truth is that there is no reason to make success any more difficult than it needs to be. Succeeding in business, and in life, is hard work. Making choices that make succeeding all the more difficult is rather stupid if you ask me. Why would you ever want to pursue a path that is not likely to succeed when there are paths with a proven track record of success available? Beats me really, but that is why some companies fail and others succeed I suppose, and what makes the world go round.
So the next time you hear that patents are not necessary, that you should not pursue a patent path because there are other, better things to do, you might want to make further inquires about the bias of the individual or entity providing such advice. It is well known in the patent and innovation industries that innovating is the first step, but a critical second step is protecting that innovation by all means possible. Those that would have you believe such protections are not necessary are ignoring overwhelming proof to the contrary, and likely have an agenda, which may be driven by any number of things, including ideology.
So, as I have warned before, beware those who say patents are not necessary. They are ignoring reality and you will be the one who suffers if you follow such “sounds too good to be true” advice. Of course it sounds too good to be true, because it is too good to be true. There are no shortcuts to success, and those who are looking for such shortcuts are going to be taken advantage of and realize that too late to do anything about it.
IAM Magazine subscribers can access the full text of the article published describing the results and outcome of the study. IAM Magazine provides a free trial subscription, which includes full archive access.
In keeping with the obviously unconstitutional FTC endorsement guidelines that went into effect on December 1, 2009, allow me to point out that IAM Magazine is not an advertiser and has not paid me, or even asked me, to write this or any other article. I merely find this study quite interesting and since they offer a free trial subscription I thought I would bring that to the attention of IPWatchdog readers.
About the Author
Gene Quinn is a US Patent Attorney, law professor and the founder of IPWatchdog.com. He is also a principal lecturer in the top patent bar review course in the nation, which helps aspiring patent attorneys and patent agents prepare themselves to pass the patent bar exam. Gene started the widely popular intellectual property website IPWatchdog.com in 1999, and since that time the site has had many millions of unique visitors. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, USA Today, CNN Money, NPR and various other newspapers and magazines worldwide. He represents individuals, small businesses and start-up corporations. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.