Most emerging companies face a Catch 22. To implement a patent strategy, a company needs funding, but it can’t get funding until it has implemented a patent strategy.

 

Fortunately, a startup can take some basic steps to optimize its strategy in a cost-effective manner. I’ve put together these tips based on my experiences helping emerging companies protect their technologies while minimizing costs and pursuing funding.

 

The goal is funding. Whether it’s an initial round of angel funding or a subsequent round of venture capital funding, the goal is to obtain the financing necessary to go to the next level. While the entrepreneur might have this goal in mind, the entire team, including the company’s patent attorney, must share this goal. If the team does not understand that every step taken with the patent strategy must get the company closer to its financing goal, then the company may fail to raise the desired funds. Remember–investors will not put money into a technology company that does not have a good patent strategy. 

 

When it comes to patent attorneys, it’s like most other things in life: you get what you pay for. You don’t want to skimp on your patent attorney. Optimizing a patent strategy is a complex endeavor that requires quality expertise early in the process. And you’ll want one with expertise in your technology (general healthcare knowledge is probably not sufficient), along with emerging company experience. Often, the best sources for finding a quality patent attorney are well-connected professionals or thought leaders in your industry, especially those you trust. The good news is that entrepreneurs are in a position–given the current economy–to demand cost-effective patent counsel who meets all their needs with reasonable or even fixed fees. 

 

Good investors examine not only the company’s patent strategy, but also the team’s level of sophistication with respect to patent law. Many entrepreneurs only know enough about patent law to be dangerous. One simple solution is to have your patent attorney give your team an “Introduction to Patent Law” presentation. 

 

You don’t want to exhibit a lack of understanding of patent basics in front of potential investors. Overtly inaccurate statements, or bragging by the entrepreneur regarding her or his patent strategy, can trigger a red flag for an investor.

 

It is important to tailor your patent strategy to your potential investors. 

 

Every investor is different–each one brings different experiences and priorities to the table. While some investors may initially focus more on patent applications, other investors may view the Freedom to Operate or FTO analysis as the first priority. You can help your company by identifying the priorities of each particular investor. 

 

It is best to be prepared to satisfy the needs of any investor by taking appropriate steps regarding both patent protection and freedom to operate. But make sure they are reasonable steps. Remember–most investors will ultimately do their own Freedom to Operate analysis anyway. So, instead of a comprehensive analysis, spend some relatively small sum (perhaps $5,000 to $15,000, depending on the technology and budget) for a preliminary analysis that can provide some level of comfort and allow you to have a substantive initial conversation with your investors.

 

Confidentiality is another example of specific investor needs. While angels will often sign a confidentiality agreement prior to discussion, VCs rarely do. An emerging company must know its audience and be fully protected before talking with an investor. If the audience is an angel, you may be able to get a confidentiality agreement signed prior to the meeting. On the other hand, if the audience is a VC, you will want to ensure that any and all technology details or plans that may be discussed are fully disclosed in a filed patent application.

 

Ultimately, an effective startup patent strategy is difficult, but attainable. A pragmatic, cost-conscious approach to your patent strategy can be the difference between success and failure for your company.