Intellectual Property for Sustainability and Excellerating Growth for Startups

by Barrister A B M Hamidul Mishbah, Managing Partner, Old Bailey Chambers, Founder, Bangladesh IP Forum.

Intellectual property is considered as the lifeblood for a startup company. In a study conducted by MIT it was found that startups that have intellectual property are more successful than those that do not have intellectual property. It may however be noted that it is not necessary that a startup must have intellectual property. Startups are new ventures or companies that aspire to develop a unique product or service and bring it to market to solve an existing problem or challenge through innovation through using technology. One of the core elements of startups is that they develop a minimum viable product and validate its business model before embarking into the market. Therefore, innovations and or technology which is a byproduct of innovation, are the underlying component of a startup, and thus précised that startups are predominantly driven and surrounded by intellectual property.

According to the said study conducted by MIT, startups with intellectual property have 40 times higher success rates. Startups with intellectual property tend to grow faster, have more revenue streams, have higher valuation and thus are more attractive to investors. Startups mostly are built from scratch which by nature has shoestring operation with a small and initial funding from the founders and their friends and families until they are able to raise funds from investors. At the initial stage these startups has no or very tiny revenue, and thus they need to heavily rely on potential funding opportunities. Intellectual property plays a crucial role in making up the valuation strategy of a startup. Investors are inclined to invest into a startup that has intellectual property and a strategy to exploit such intellectual property for generating revenue. Despite the possibility of no or little revenue, investors are more likely to invest into a startup with intellectual property because if in case the startup fails, the intellectual property it has can be sold in the marketplace and the return can pay off the investor. Therefore, a large part of a startup’s strategy should emphasize on managing their intellectual property and making money out of such intellectual property. Thus, intellectual property increases the competitiveness of a startup and provides a potential source of revenue, and puts a startup ahead in the competition.

However, startups are often seen lacking in giving appropriate attention and focus on their intellectual properties. Startups are found devoting lots of time in creating business plans and preparing for pitching potential investors for raising investment or funds, but at times they lack the time, resources, or knowledge to address intellectual property issues within the organization. For a startup it is very important that it understands and is able to categorize its intellectual property, how the intellectual property makes it stand out in the marketplace and provides it a competitive advantage for competition and over its competitors.

Investors would expect a startup to clearly and effectively set apart how it will use its intellectual property to embark in the marketplace and grow its business. Consequently, a startup must embrace an intellectual property strategy within the organization and such intellectual property strategy must be aligned with its business objectives and goals.

However, since startups are presumed to endeavor solving or address certain problems or challenges through use of innovative technology and tools, startups are likely to have or are exposed to intellectual properties by nature. As a matter of fact, a startup can have multiple intellectual properties, ranging from Patent, Trademarks, Copyrights, Designs and Trade Secrets. A startup must protect its product/s or service/s brand name or trademark before it brings its product or service to the marketplace. Besides, a startup shall as well explore avenues to seek protection for its technology or inventions under the patent law and copyright law respectively. Startups shall, depending on the type of innovative products or services it has, seek protection under the copyright law, design law or secure its intellectual property as a trade secret if applicable.

It may be noted that intellectual properties are required to be protected differently but appropriately since each of them are equally important and allow competitive advantage and opportunity for earning revenue for a startup. Irrespective of the types and numbers of intellectual property a startup has, its intellectual property strategy must include a threefold approach, i.e. protection, management and enforcement. A startup must be mindful that its intellectual property management mechanism includes licensing and monitoring aspects. Smart licensing approach could help a startup generate more revenue and deploying unyielding monitoring system would help exclude competitors or unscrupulous entities abusing its intellectual property unfairly or in detriment to its interest. As a result, startups not having an intellectual property strategy within the organization could miss on startup value, expose it to risks including investors losing interest in investing, resulting failure.

Startups must keep in mind that investors are keen to maximize their returns. Investing in intellectual property assets will allow them to simply establish value for such assets, and they often look for startups with intellectual property assets that are sustainable and scalable and are ready or close to be taken to the market, which makes their investing decision much easier and less risky.

Regardless of the type, whether product, service or technology, the most valuable assets for a startup are its intellectual property, which encompasses the major part of startup value, and escalates the possibility of getting investments. Intellectual property provides a sustainable competitive advantage, greater chance of market success and higher investor returns for a startup. The continuing profitability of a startup would depend on its ability to protect, manage and use the intellectual properties to accelerate business and growth at the marketplace.