Metayage was hired by a Deep technology focused Venture Capital firm while they were conducting a due diligence on an Industrial IoT (Internet of Things) startup company that was targeting international markets. The client had two primary concerns: a) the risk that the startup would be infringing third party owned patents, and b) whether the inventions that the startup had applied for patent protection were indeed patentable. Metayage conducted an exhaustive Freedom-to-operate search on major markets including the US, the European patent office, Japan, South Korea, and India.
IP Due Diligence For Venture Capitalists
Venture Capitalists invest in deep tech startups looking to multiply their valuation and exit within a few years. The ability of a startup to scale and increase in value rapidly depends on the extent to which its products are innovative and differentiated from its competitors. However, these innovations can be copied by competitors after the products are launched, which may gradually decrease the startup’s competitive advantage. Hence Venture Capitalists evaluate startups based on their level of innovation. One metric that indicates the innovativeness of a startup is the number of patents it has filed, since each patent corresponds to an invention. The Total addressable market includes multiple countries, and the ability of the startup to gain competitive advantage across the addressable market depends on the number of countries in which they have secured patents. While Venture Capitalists want to maximize the valuation of their portfolio startups post investment, and want them to scale rapidly, they also want to minimize their risks and liabilities. One major risk that deep tech startups face, particularly when they start selling their products in multiple countries, is infringement of third party owned patents, which can be detected by performing a freedom to operate search.
Investors conduct due diligence that includes a verification of IP ownership, and freedom to operate, in order to minimize risks of infringement of third-party patents. During the course of IP due diligence, if they found out that critical innovations are not patented, they have connected us to startup founders to make them ready for funding.
Client Success Stories
Case Study 1
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The search unraveled a few granted patents that appeared to have significant overlap with the startup company’s product. We prepared detailed claim charts that mapped the elements of the claims of the granted patents to the product features. Subsequently, Metayage scheduled a meeting with the startup founders and discussed each relevant patent, claim by claim, and claim element by claim element, to ascertain whether the claim element was present in the startup’s product or not.
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We also conducted a patentability search on the 2 inventions that the startup had applied for patent applications. They had obtained patentability search reports from their IP firm that stated that both inventions were patentable. However, Metayage’s search identified killer prior art for one of the two inventions that rendered it lacking in novelty. Hence the investors realized that only one of the two inventions was patentable.
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Finally, we prepared a presentation with all the observations and findings and delivered a presentation for key stakeholders in the Venture Capital firm. All the concerns and questions were addressed, and the Venture Capital firm decided to proceed with the investment conditional to the startup ensuring that they would apply the recommendations made by Metayage to minimize risks due to infringement of third-party patents.
Case Study 2
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Metayage helped a deep tech startup at the intersection of AI and healthcare to build an international patent portfolio. As the startup was raising a pre-series A round from a new investor, the new investor wanted to conduct an IP due diligence prior to the investment. The new investor had been working with another IP firm for several years but was increasingly dissatisfied with the quality of their work and their lack of commitment to existing clients. As the investor was discussing this challenge with the startup, the startup suggested that the investor engage with Metayage for the IP Due diligence and highly recommended our services.
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Whereas it is highly unusual for the same IP firm that has worked with a startup to be engaged by a potential investor for due diligence on the same startup, since the startup had a high level of trust in the integrity of the Metayage team, they assured the investor that the results would be unbiased and transparent. The investor decided to go ahead by engaging Metayage, based on the understanding that the startup would pay for the due diligence. Metayage conducted both patentability as well as Freedom to Operate searches, and prepared presentations for the investor explaining the guard rails that could affect the startup’s patentability as well as by flagging potential risks due to infringement of third-party patents. The investors had several calls and rounds of discussions with the startup as well as with Metayage, and Metayage clarified the investors' doubts and concerns.
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The startup did their homework and responded to the various queries raised by the investor. Finally, the investor decided to make the investment and the startup implemented some initiatives to enhance the uniqueness of their inventions to strengthen patentability, as well as ensure that the infringement risks are kept to a minimum. Once the money hit the bank, the startup invested significantly both in R&D as well as in strengthening their international patent portfolio, with the funds raised.
