Unlocking the Potential: The Influence of IPRs on Startup Financing

Patents and Trademarks: More than Just Legal Tools

At first glance, patents and trademarks are legal tools protecting technical inventions and brand identities. However, their role extends far beyond mere protection. These IPRs serve as a distinguishing feature of a startup’s innovative and creative efforts, signaling a startup’s technical expertise in their field, and market potential. For investors, IPRs are the markers of credibility and potential for return on investment.

The European Patent Office (EPO) and the European Union Intellectual Property Office (EUIPO) have carried out a study examining the role of intellectual property (IP) rights in facilitating access to finance for European startups, followed by a publication Patents, trade marks and startup finance – Funding and exit performance of European startups. The study finds that on average, 29% of European startups have filed for registered IPRs, with biotechnology startups leading the charge. As startups progress from the seed stage to later funding rounds, the number of startups with IPRs increases significantly — from 10% at seed to 44% in late-stage rounds. The message is clear: as startups grow, so does their reliance on IPRs.

A Magnet for Venture Capital

Startups with IPR filings in their infancy show a significantly higher likelihood of securing venture capital (VC) funding. Those with patent applications are 6.4 times more likely to obtain early-stage funding, while those with trademarks are 4.3 times more likely. This correlation underlines IPRs’ role as a strong indicator of a startup’s potential and its capacity to draw in venture capital.

The study underscores the weight of European-level IPRs. Startups with European trademark applications are 6.1 times more likely to receive early-stage funding, as opposed to 2.8 times for those with national trademarks. The narrative is similar for patents, demonstrating that European IPRs carry a stronger signal of quality and ambition.

For new ventures, the study’s findings emphasize the strategic importance of securing IPRs early on. European startups, in particular, should consider European-level patents and trademarks as vital components of their growth strategy.

The Exit Strategy: Higher Odds with IPRs

When it comes to exit strategies, such as IPOs or acquisitions, startups with IPRs are more than twice as likely to succeed. Those with both patents and trademarks demonstrate the highest likelihood of successful exit, particularly if the IPRs are at the European level.

Conclusion: IPRs as Cornerstones of Startup Success

Intellectual Property Rights are not mere legal formalities; they are fundamental assets that support the financial viability and success of startups. They serve as a bridge between innovation and investment, signaling trust and potential to investors. As the European startup ecosystem continues to flourish, the strategic use of IPRs will remain a cornerstone of entrepreneurial success.

Link to the survey results: https://link.epo.org/web/publications/studies/en-patents-trade-marks-and-startup-finance-study.pdf