For most first-time entrepreneurs, intellectual property is a giant black hole. Most of us are familiar with the concepts of intellectual property – copyrights, patents, etc. – but few of us have been involved in really assessing and understanding intellectual property, its value and whether it’s important or not.
Jason Mendelson does a great job of looking at the value of patents for startups, with input from Brad Feld and Rob Shurtleff.
My thinking is much the same as theirs — the value of patents for startups is unclear. The one caveat is that I’m speaking specifically of Web 2.0-type / Web-based startups and not companies in biotech, life sciences, high-tech or clean-tech (where patents are almost a must.)
Most Web 2.0 startups are about execution. It’s not about a catalog of patents you use to defend your technology, or add value upon an acquisition. Rob Shurtleff (a VC), points out, “Software patents have in our experience not added significant value to early stage companies when they are acquired…”
Today’s startups benefit from more open technology – the ability to mash things up, integrate disparate systems, etc. and create new businesses – and as such require less capital to get off the ground. But as it gets easier to start a company, more people do. And so you get the growing phenomenon of “me too” companies – near-identical clones of previously successful startups. I’m not suggesting you run out and start a “me too” company, but certainly the trend today is to get started quickly, develop something rough, throw it out there and see what happens. Iterate often, don’t stop developing, but don’t spend years in development before launching.
So with the focus on execution, and trying to go faster, better and smarter than everyone else, how do patents fit in? And more importantly, what are investors’ expectations when it comes to intellectual property and patents?
Whether you think patents are important or not, I suggest you have an answer to the question, “What’s your IP and patent strategy?” And it’ll have to be more than, “We don’t have one, this is an execution play.”
It’s fair to say, “I don’t know, but I’m interested in working with you on figuring it out.” VCs and other investors have to appreciate your newness as an entrepreneur (if you’re a first-timer) and the early stage of the investment.
Alternatively, look 6 months, a year or even further down the road at what you’re thinking about developing. You won’t have a set development roadmap in place; it’ll be more a “wish list” of items or a “grab bag” of possible ideas. Those future development opportunities and features will be more sophisticated than what you initially build, and so there may be some worthwhile intellectual property and patent opportunities down the road. So a reasonable answer might be, “I don’t see a lot of IP opportunity initially, but down the road when we get to building X, Y and Z, I think we could sit down and come up with a good IP and patent strategy.” At least in that scenario it shows you’re thinking about it, and not simply brushing off the idea entirely.