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Medical Alley Association serves the individuals and organizations that comprise Minnesota's health industry by influencing policy, fostering connections and providing critical intelligence to improve the quality of health around the world.

Medical Alley Association serves the individuals and organizations that comprise Minnesota's health industry by influencing policy, fostering connections and providing critical intelligence to improve the quality of health around the world.

6 Patent Benefits That Drive Startup Success

The following is an excerpt from a longer article on Intellectual Property and Startups 

1.) Organic Growth for Startups

Patents are causally linked to startup sales growth (+51%) and employment growth (+36%).

The first patent grant by a startup increases its ability to continue innovating, by increasing the number of subsequent patents filed by the startup (+49%) as well as the patents quality (+27%).

Granting of a patent application from a startup company improves the probability of an IPO (+153%) and increases the probability (+84%) of being acquired over the unconditional probability.

2.) Increased Company Sales Multiples

Patents, Trademarks and other forms of IP drive multiples growth in the sale of startups.

Generally, companies without IP do not generate significant multiples during sale of the company. This is because they do not create a protectable space in their market that a buyer can rely upon after sale.

Therefore, companies with good to great patent coverage of their marketplace generate a sales multiple in the range of 5-21X earnings.

Other studies show that doubling patent inventory has been attributed to a 24% premium in market valuation.

3.) IP promotes VC Attention

This advantage is compounded by the first grant of a patent application which improves the probability of receiving venture capital in the next 3 years by 2.3 points, a 53% increase over the unconditional probability. The effect is strongest for startups that (i) raised little or no VC funding before the USPTO’s decision, (ii) were founded by inexperienced entrepreneurs, and (iii) operate in the IT sector.

Several of the new SaaS health information companies, like Athena Healthcare, use patents to increase their EV/revenue ratios over 100%.

4.) IP is an Asset

Filing patents is a relatively easy way to create assets in your business. Few articles have dealt with the strategy of using a patent as an asset of the business. Patents are intangible assets that can be used as collateral, be depreciated and qualify for tax credits on R&D.

The average value of a patent during sales in Q3 2015 was $288,133, with a median value of $232,588.

5.) First Mover IP Advantages

First movers in an industry enjoy an added advantage when they also file patents and other IP as the IP will help preserve their market position.

Bundles of IP (Patents and Brands) tell the story of your innovation that you can utilize in your marketing and sales efforts. Even a modest filing strategy that captures the startup story will help a company establish to its investors and customers that it is a first mover in the market.

6.) Patents are used as Stock Performance Predictors

There are a number of stock-predictor algorithms for companies that display specific configurations of patenting activity.

The specific patent sequences detected correspond to predictable innovation within a company. Innovations can be converted into new products for the market that generate increased sales, resulting in the stock outperforming the competition.


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 mark_stignani_headshot   Mark Stignani is a registered patent attorney at Schwegman Lundberg & Woessner, P.A. Mark has patent experience in various technology areas, including software, information systems, mobile devices, computer hardware and design, telecommunications, and mechanical. His practice includes prosecution, reexamination, patent and portfolio analysis, freedom to operate, patent strategy and planning and strategic counseling. Prior to joining Schwegman, Mark served as an Assistant General Counsel for Thomson Reuters for over ten years.