How do you convince someone to give you a check for $10 million?
Many founders wrestle with exactly this question, often when their startup does not yet have to generate any sales or even bring a product to market. VCs often have to rely on signals other than financial results to gauge the prospects of a potential investment.
One such signal is the presence of a patent portfolio, as our new research shows.
One of the most interesting findings is that when patent-seeking startups achieve an exit, they do so through the public markets a whopping 23.2% of the time. This is in stark contrast to companies that have not applied for patents, where only 4% of exits are through the public listing.
This fact should be encouraging for investors, as exits from the public market are typically significantly larger than acquisitions. Additionally, both public listings and acquisitions are generating higher values for patent seekers, with average exit values in each category being 2.1 times higher from 2011 to 2022.
We also find that patent-seeking startups receive bigger checks — and at higher valuations — than their peers at every stage throughout the funding lifecycle, making the outsize exits more necessary.
This indicates that VCs can view a company’s IP portfolio as a positive input when making investment decisions. However, causality is difficult to establish as there may be other signals that investors engage in that tend to coincide with the presence of patent search activity.
Our new research leverages PitchBook’s patent record, which consists of more than 46 million patent application and prosecution documents in many jurisdictions. Although this is the first time we have explicitly examined this data, we will continue to use it in future analysis as it provides an interesting new lens through which to study private markets.
Download the free research: Introducing PitchBook Patent Research
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