Why start-ups should lean into their IP opportunity, even in a down economy

By Katy Askew

- Last updated on GMT

Securing IP might be pricey, but it can often be worth the expense / Pic GettyImages-Casezy
Securing IP might be pricey, but it can often be worth the expense / Pic GettyImages-Casezy

Related tags Intellectual property IP Innovation Food tech

Start-ups are under more pressure than ever in today’s turbulent economic climate. But while securing intellectual property rights might not feel affordable, the USP they deliver could prove more important than ever.

Start-ups are facing a challenging environment as economic headwinds hit. Investment is becoming harder to come by as venture capitalists weigh up increased risks associated with a down economy.

“With a changing risk dynamic, the appetite for all venture investing is waning,”​ Oghma Partners founding partner Mark Lynch reflected.

“Across the board we are seeing early stage businesses reviewing their business models to reduce cash burn and to stretch their cash runways and get them through the tougher market environment; those looking to see funding now are undoubtedly facing a tougher challenge,”​ the investment advisor told FoodNavigator.

As founders baton down the hatches, IP experts at Marks & Clerk reflect that they could attempt to streamline costs by foregoing expenditure on generating intellectual property (IP) assets.

The temptation to relegate IP to the status of an ‘optional extra’ or ‘nice to have’ rather than something that is essential for business growth during periods of economic uncertainty is a ‘concerning trend’ – and one that could have a significant impact on the long-term success of many new ventures, the consultancy predicts.

“Capturing generated IP often doesn’t feel affordable to start-ups and during periods of extreme economic uncertainty, the unpredictable process of securing IP assets further underscores these reservations,”​ explained Robert Lind, Partner at Marks & Clerk and author of e-book The IP Driven Start-up.

“For many start-ups, critical IP assets will simply have been overlooked in the journey from foundation to exit, meaning that the company’s value will be determined primarily by unsecured know-how, trade secrets, people and relevant contracts.”

Recognising the value of IP

While IP might be pushed to the back of an all-too-long priority list by more pressing challenges, Lind advises against overlooking the importance of protecting trade secrets and industry know-how and warns that to do so could come at the expense of long-term success, hitting a company's ability to compete in the market and dampening its valuation when the time comes for founders to exit.

He suggests that founders need to think about how to use IP to their advantage from the outset – as a means by which to maximise profitability and drive business growth.

“Expenditure on IP should be viewed as an investment in the long-term future of the business, as a means by which to enhance its commercial value,”​ Lind explained.

Having IP assets creates a more robust and commercially stable business, he continued. “Securing IP has advantages that contribute to the success of start-ups – primarily surrounding innovation. IP-driven start-ups are more likely to create innovative products and services that can be patented, often addressing real-world problems.”

Building your USP is building value

One area that IP makes a massive difference is the valuation of a start-up, an important factor if founders are thinking about exit strategies.

Oghama’s Lynch stressed that the unique selling point of a start-up will determine interest from prospective buyers when the founder decides it is time to exit the business, providing some protection from the macro-economic headwinds small businesses currently face in their valuations.

While small businesses might be feeling the pinch and VC investors could be getting the jitters, Lynch predicts larger corporate buyers may well step-up their M&A activity as they seek out start-ups with particular R&D capabilities. “As growth plans alter and the risk appetite of investors wane this inevitably has an impact on valuation – and we are seeing this already. Where the early stage businesses have some USP they are likely to see larger corporates circling and as an exit route it may appeal as it provides an out for investors and solves long-term funding issues and may offer synergies, improving business models too. For the corporate, they may be attracted by the lower valuations which up until now may have been difficult to justify.”

The key here is for start-ups to be able to demonstrate their unique know-how or USP. IP assets – particularly registered IP assets including patents and trademarks – have a tangible value that directly correlate to the overall value of a company. And if founders take a sensible approach to pursuing protection, the value gained can and should be many multiples of the investment put into securing the asset, Lind added.

An effective IP strategy needs to be thoughtful and carefully managed. “The inherent value of an IP portfolio must though be coupled with precise management and presentation. Being able to demonstrate a systematic approach to IP, crucially with written procedures, is critical, as is the retention of properly signed documentation – without which the value of securing the IP can be easily undermined.”

However, he continued: “It doesn’t all have to come down to registering assets, there are significant rights attached to unregistered assets – such as know-how, trade secrets and copyright – but founders must know how to maintain suitable records of these unregistered rights in order to enforce them with any credibility. But their value should certainly not be underestimated. Even if they remain unregistered, many IP assets will remain critical to achieving a successful launch of a product or service.”

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