Is intellectual property (IP) a factor in investment decisions?
“It depends!” That’s the typical answer a lawyer would give. Patent attorney Anna Katharina Heide evaluates companies’ IP assets for investors before they commit to investments worth millions. In the context of an investment where technologies must be considered as value-adding IP, she examines various types of intellectual property rights.
Startups seek funding at a stage when all they can initially offer is a proof of concept and their vision. Hardly any startup can provide real data within the first five years that demonstrates the technical feasibility of the product—whether a physical product or a process. Cost structures, technical manufacturing requirements, and marketing concepts are also only roughly defined at this stage. At the time of a pitch, the most commonly available IP assets are patent applications that have not yet been granted, as well as know-how that is still somewhat uncoordinated and strategically unstructured. New ideas at the intersection of biotech/medicine and computer-implemented technologies may even be excluded from patentability or can only be partially protected.
The granted patent defines the scope of technical protection that the patent holder can defend against competitors within a specific territory. However, before that can happen, the patent authorities must first be convinced. A valid legal monopoly does not exist until many years have passed, and it will be defined differently in Europe than in the U.S., China, or other regions. This is particularly true for inventions that combine technologies from biotech/medicine, digitalization, machine learning, and artificial intelligence. Therefore, an early valuation of a startup does not allow one to draw conclusions about its global IP position.
It would be a fallacy to prematurely classify a narrowly defined patent as weak or a generically broad patent as strong without first examining the specific competitive landscape through a so-called landscape analysis.
In addition to patents—which become publicly available 18 months after filing—it is important to consider unpublished intellectual property. This includes know-how and trade secrets, which, in the best-case scenario, are documented in the startup’s records, but more often than not are kept solely in the minds of the founders or employees. It is precisely this know-how that is of particular value for interdisciplinary technologies.
In nearly every instance of drafting a patent application, I find that the initial invention disclosure does not initially describe what constitutes the actual essence of the invention. Only through an iterative process between the patent attorney and the inventor is it possible to articulate the inventive core and fill in the gaps. The situation is similar with regard to know-how required to transform the invention into a product. Through dialogue, the holders of the know-how and the know-how itself must be identified. Therefore, the evaluation of a startup must not begin and end with the patent analysis. Rather, it must include access to the patent rights as well as access to the broader know-how.
Ultimately, it is not only essential basic patents but also the protection of all IP rights and the integration of the team of inventors into the company that are crucial for a return on investment. Therefore, for successful business development and the prospects of a product launch, an internal IP strategy must be established that takes into account all the specific characteristics of the technology in question.
How much detail must be included in the patent? What is patentable and enforceable? What information is better protected as trade secrets? What are the possible ways to circumvent the patent? These questions, along with the handling of IP, must be the focus of a goal-oriented IP strategy. Even at a later stage, when a product already exists and investors are being sought for expansion, these same questions retain their essential relevance.
Valid patents are essential for demonstrating a company’s competitive monopoly. Furthermore, internal expertise and proprietary know-how ensure the foundation for the product’s realization. An active, strategic dialogue with a patent attorney can help structure these challenges early and efficiently within a tailored IP strategy, thereby creating and protecting lasting value for the company.