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.

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.

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.

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.