Key Takeaways

  • Venture capitalists evaluate IP assets to determine market fit, competitive advantage, and legal strength before investing.
  • Strong, enforceable IP rights—such as patents, trademarks, copyrights, or trade secrets—can significantly increase a company's valuation and appeal to investors.
  • Investors look for clear IP ownership, freedom to operate, and protection strategies to mitigate legal and market risks.
  • The economic value of IP assets depends on market relevance, enforceability, and their ability to generate sustainable competitive advantage.
  • Strategic IP management, including licensing and portfolio diversification, can enhance long-term returns for both businesses and investors.

However, there are some important concepts you should understand before pursuing such an undertaking.

Venture Capitalists and IP Rights

A big problem many new technology companies and startups face is obtaining their first round of funding. In most cases, a new company has two options for gaining initial funding:  

  • Going into debt  
  • Obtaining a venture capital investment.

A venture capitalist is going to want to:

  • Know how an innovation or invention is going to fit into the current market, specifically relating to potential competing products or services that may already exist or could possibly exist in the future.
  • Know if what he or she is investing in has a large, sustainable advantage over the competition.
  • Want evidence that suggests building a business around the proposed innovation or invention is warranted.

How Intellectual Property Influences Investment Decisions

When evaluating opportunities, investors often view intellectual property (IP) as more than just a legal safeguard—it is a strategic asset that can define a company's market position. Strong IP rights can:

  • Act as a barrier to entry for competitors, enabling premium pricing or market exclusivity.
  • Create opportunities for licensing or joint ventures, opening additional revenue streams.
  • Enhance the company’s valuation during funding rounds or acquisition negotiations.

However, investors will also consider potential liabilities, such as weak patents that may be challenged, unclear ownership from collaborative research, or regulatory hurdles in specific markets. A company with a clear IP strategy, documented ownership, and demonstrated enforcement capabilities is more likely to secure funding at favorable terms.

Evaluating Strengths and Weaknesses

Investors want to evaluate the strengths and weaknesses of an invention thoroughly, as well as the entrepreneur's ability to motivate sales. Venture capitalists do what they do because they want to get the maximum possible return on their investments with a minimal risk. Potential risks an investor will need to consider include things such as: 

  • The current market  
  • Financial considerations  
  • Managerial considerations  
  • Technological requirements.

New technology companies typically cannot afford things such as litigation. This is because they need to apply most of their time and their resources in developing their product or service. Then, they must attempt to commercialize it. For this reason, if there is a potential legal concern that may come into play, the possibility of obtaining a venture capital investment is greatly reduced. For example:

  • Patent lawsuits can cost around $500,000 for a single claim if they are brought to trial.
  • Trade secret law suits can cost anywhere from $300,000 to $500,000.

As a result, intellectual properties that come in the form of something like a trade secret will usually be more attractive to a potential venture capital investor than a theoretically "weak" patent, which could potentially be open to facing legal action. One good example of the impact intellectual property can have on the potential success of a company is the fact that venture capitalists tend to favor investing in them.

Key Factors Investors Examine in IP Portfolios

When investing in intellectual property, investors assess a variety of factors to determine both potential returns and associated risks:

  1. Ownership and Chain of Title – Confirming that the company has full, undisputed rights to its IP, free of third-party claims.
  2. Scope of Protection – Evaluating whether patents, trademarks, or copyrights cover core products or processes and whether those rights are enforceable in key markets.
  3. Market Alignment – Assessing if the IP aligns with current market demands and future trends, reducing the risk of obsolescence.
  4. Freedom to Operate (FTO) – Ensuring the company’s products or services do not infringe on others’ IP rights.
  5. Geographic Coverage – Considering the breadth of IP protection across international markets, which is crucial for scaling globally.
  6. Defensibility and Enforcement Record – Reviewing whether the IP has been successfully defended in past disputes or licensing negotiations.

Weaknesses in any of these areas may require remediation before an investor is willing to commit funds.

The Importance of Intellectual Property Assets

SME technology-based companies can primarily benefit from the exclusive rights the intellectual property system offers. When the intellectual property system is properly utilized, it can contribute in a number of beneficial ways, such as higher capital return rates. This is important when companies are attempting to attract potential venture capital investors. 

It is important to evaluate the economic value of things carefully, such as:  

  • Patents  
  • Trademarks  
  • Computer software  
  • Internet domain names  
  • Intellectual properties.  

Potential investors should carefully consider these things when analyzing whether a company should receive an investment. Venture capitalists should use established and consistent methods to evaluate a company's intangible assets, so as to make an informed decision about whether a company should receive an investment. The potential security of specific intellectual property is one of the most important things that a venture capitalist should evaluate.

Under normal circumstances, a strong patent is highly desirable. The ownership of the intellectual property should also not be able to be called into question, specifically when a potential investor is conducting research at universities or similar research institutions. The venture capital investor should also take the potential financial burdens associated with patents into consideration.

There are a number of market-specific mechanisms that can play a critical role in the diffusion of technology. This can cause the process of innovation to become:

  • Highly competitive
  • Globalized
  • Cooperative. 

This can also help to create new technology-based companies. To take these factors into consideration, a venture company needs to utilize more, robust intellectual property to stay competitive on a global level. The Organization for Economic Cooperation and Development, otherwise known as the OECD, has indicated positive changes in regards to the legal and regulatory requirements for patents in the following areas:  

  • United States  
  • Europe  
  • Japan.  

This has directly resulted in the growth of patentable items, as well as more valuable patents overall.

Maximizing Returns Through Strategic IP Management

For investors, the long-term value of IP lies in how it is managed and leveraged. Companies that actively monitor, enforce, and expand their IP portfolios can create sustained revenue streams and competitive resilience. Key strategies include:

  • Regular Portfolio Audits – Reviewing patents, trademarks, and copyrights to ensure they remain relevant and enforceable.
  • Licensing Programs – Monetizing unused IP through licensing agreements without diluting core business operations.
  • Defensive Publications – Publicly disclosing certain innovations to prevent competitors from patenting them while keeping other aspects as trade secrets.
  • Cross-Licensing and Strategic Partnerships – Using IP to negotiate favorable terms in collaborations or joint ventures.
  • Exit Strategy Planning – Positioning IP as a major value driver in mergers, acquisitions, or IPOs.

Investors understand that IP’s value is not static—it depends on active management and alignment with evolving market opportunities.


Frequently Asked Questions

1. Why is investing in intellectual property important for startups?

It helps secure competitive advantages, attract funding, and create revenue through licensing or exclusivity.

2. What types of IP are most valuable to investors?

Patents, trademarks, copyrights, and trade secrets—especially when enforceable and aligned with market demand.

3. How do investors assess IP risk?

They evaluate ownership, legal enforceability, market relevance, and potential infringement risks.

4. Can IP be monetized without selling it?

Yes. Companies can license their IP, form joint ventures, or create royalty-based revenue models.

5. Does international IP protection matter?

Absolutely. Strong geographic coverage ensures market expansion potential and reduces infringement risks abroad.

If you need help with investing in intellectual property, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.