For both entrepreneurs and investors, the importance of intellectual property (IP) in startup valuations is essential. It may influence the startup’s Intellectual Property valuation, as well as funding decisions and value calculations.
Can a startup build portfolio that will improve its overall valuation?
A company’s patenting strategy includes both legal and business considerations. Lawyers are most suited to handle the legal side since they can look for prior art and identify. Where patent protection should be sought depending on the market’s patent landscape. A patent portfolio will have value only if it is well aligned with the assets. That offer the most value to the firm from a business/valuation standpoint. Patents may be more valuable in firms where technology is the most valuable asset than in organizations where the brand is the most valuable asset.
How are IP portfolios reported on a startup’s financial statements?
There is no place on a startup’s financial accounts, or any company’s financial filings, to determine the worth of its internally created IP assets. The value of internally produced IP assets is not typically required to be reported on the balance sheet under accounting standards in Malaysia and throughout the world. There is an IP reporting gap in this respect, which is compounded by the fact that IP transactions are highly confidential. And are not typically reported at any degree of detail. That would allow the establishment of price databases to help assess similar IP assets. Finally, even if all IP transfers and pricing were fully disclosed, the IP assets are unique, making direct comparisons difficult.
Is there a specific method of valuing patents for startups?
The valuation context and situation are more important than choosing a valuation technique. First, whether the business has generated enough intellectual property valuation to support a distinct value must be determined. Something valuable must have been developed or accumulated, and IP protection must be in place around these assets.
The second issue is: what is the startup’s business model, and which IP assets are most valuable in that context? Then there’s how the startup’s IP assets add value, which would determine the valuation situation. The topic of the valuation strategy and techniques only addressed after all of this has been established.
I’ve seen that the market method is commonly used in situations involving startups when it comes to patent value. This technique of valuing is based on similar patent transactions. Which may be found in patent transaction databases and other public disclosures. The ability to develop credible estimates of addressable markets is required to use the income strategy based on out-licensing prospects connected with patents.
A cost-effective method to increase the patent portfolio:
The simplest method of obtaining patents is organic filing. Due to a lack of resources, many companies do not always prioritize patent protection. And as a result, they may miss an opportunity to protect their innovation. A patent-only acquisition generally occurs in response to a threat. When a firm has a poor Intellectual property valuation position, there are numerous points when it is most vulnerable. Mainly if it is a startup with an excessively high valuation: entering new markets alongside existing incumbents and reaching a moment of exit, such as an IPO.
In recent years, a process is known as “backfilling” has emerged, in which firms purchase patents to fill in gaps in their FTO, with priority dates that sometimes predate their foundation dates. IBM and AT&T have been at the forefront of selling patent portfolios to startups like Uber and Twitter to backfill their portfolios.
