Locking down funding for a startup or business venture takes a lot of work. One area founders should not overlook is the protection of their intellectual property, or IP, as such protection is not only important to owners, but to those looking to invest as well. Below is a quick look into why IP protection must be kept in mind as founders work to secure investors.
First, what all falls under the term “intellectual property”? Essentially, it is the property of the mind in terms of the product, or outcome, from ideas, information and knowledge generated by you or other members of the team. IP can be categorized in four types: patents, copyrights, trade secrets and trademarks. Often, these points are considered to be the most valuable assets owned by the startup. IP is what gives the budding business a competitive edge in the market and sets it apart from others.
IP represents a significant financial and legal asset, regularly estimated at more than 80% of a company’s total value. Because it is an intangible asset, it is very vulnerable to being copied by rivals or stolen if not legally protected. That’s why safeguarding it properly is so important from the onset. Just as a logo, brand and even the physical assets of a startup must be insured and protected, so too must IP.
Another reason why adequate protection is so necessary is that it has practically no limit on its potential value. Unlike asset classes with fixed values which can depreciate, such as machinery, the value of IP can increase indefinitely. Ensuring it is secured also reduces operational risks during the startup process and down the line.
Having a solid intellectual property portfolio makes new companies more attractive targets for financiers. When this portfolio is well secured and has rights in major markets, it boosts trustworthiness and appeal to backers, as the venture seems ready to be taken seriously. It also creates a strong foundation for scaling the business quickly and extensively.
Protected IP also works as a marketing and sales tool that can be leveraged several ways. For instance, when a company merely wants to sell an asset they have copyrighted, patented or trademarked, the distinguishing symbols of ownership can make the product more desirable. How so? These symbols send the message that the owner believes in the product, or its innovativeness, to such an extent it needs to be kept safe from competitors. This message appeals to customers and investors know it.
The costs of going through an attorney to research, file and protect IP legally may be daunting for startups. However, when the creation and protection of intellectual property is adequately funded, the chances of such investments being recouped are often far greater than the alternative.
For further information on securing funding and what investors want to see in terms of the steps taken to protect IP, please see the accompanying resource.