Congratulations on coming up with a new technology and venturing on your entrepreneurial journey. Maybe you have built a minimum viable product, got interest from potential customers and now you are ready to pitch to investors. At this time, you may be wondering how much your company is worth, and on what basis you can determine the value of your company. The value of an early stage technology startup is hard to determine, because you still do not have significant revenue or profits. What you may have is a team, a product, and some potential customers who have shown interest in the proof of concept. Hence, most of the value of your company is intangible. But don’t lose heart, that itself is significant. Did you know that over 80% of the value of technology companies comes from their intangible assets?
For a technology company, patents are particularly important, since they provide the broadest and strongest protection for products or processes that solve a technical problem and are capable of industrial application. A strategic patent portfolio creates barriers to entry for competitors and increases the valuation of the company.
However, the first step towards building a strategic patent portfolio is to list out important technical problems that are relevant to your field. As a technology company in the field of for example “Artificial Intelligence for Retail, or Computer vision for traffic management, you can come up with a list of specific technical problems in that field. One way to do this is to conduct a search on patent databases based on a patent classification class or sub class. You will get hundreds of patents in that field. Each patent would be trying to solve a specific technical problem, like for example detecting and classifying a traffic light.
You will also get the name of the company that has applied for the patent (e.g. Ford Global). You can understand the approach described in the patent. It may have certain advantages but it may also have some limitations or drawbacks. If you can come up with a better solution that overcomes those limitations and patent it, you know that the company which owns the patent for their method of classifying traffic lights will be interested in licensing your patent or acquiring it.
Like this, you can list out the major players in your field and list the problems they are spending millions of dollars in trying to solve and patent. Build teams who work on each of these high value problem statements. These high value problem statements, when solved are going to give you maximum return on your investment in R&D. If you come up with better solutions than what the big companies have tried to patent, those companies can become your potential strategic partners, licensees, customers and maybe even potential acquirers. That is also how you can position your company strategically for an exit. Once you list out important technical problems, the next is to identify what inventions you currently have.
The inventions can not only come from the founders of a startup, but also from your technology team, UI/UX team, backend developers etc. For a startup that is inter-disciplinary, the inventions could be related to mechanical aspects, electronics. Software, AI, IoT, biological markers, chemical compositions, etc. A classic mistake made by startups is to file a single patent to tick a checklist that focuses more on the mechanical or hardware aspects and to ignore the software, AI, or algorithms. Although an abstract concept or a pure business method, or a mathematical formula as such is not patentable, they are patentable when combined with hardware to produce a technical effect or make an improvement to a technical field.
Every invention is applied in the context of business, so there is a business method associated with monetizing the invention. If you’re using technology in a unique way to achieve the business goal, then, that may be something which is, potentially patentable. Whereas if it’s purely a business method, and there is no technology being applied to solve that problem in a new way, it may not be patentable. Further, a combination of software and hardware may be used to implement the business method. The hardware could be in the form of a camera, or a distributed computing architecture of devices communicating with servers through a network.
You can identify what inventions you currently have by asking questions like:
- Has the problem that you’re trying to address been a long standing need in the industry?
- Does your solution have any new steps, features, or elements that didn’t exist?
- Is the solution routine or is it unconventional and out of the box?
- Is there any improvement to technology or a technical field?
- Is it faster, more efficient, more accurate, and/or cheaper that existing approaches?
- Does it have an application in the industry which has economic value?
If your answers is yes to most of these questions, there’s a good chance that you may have an invention, which may be worth patenting.