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Patent Strategies of Technology StartupsCELIA LERMANSTANFORD LAW SCHOOL - FULBRIGHT SCHOLARROTMAN, SZLAK & LERMAN – ARGENTINAJULY 2015
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Innovation
Startups
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How do patents affect a tech startup’s growth?
• Under what conditions should a tech startup pursue patents?
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Approach: A Quantitative Study
Startup Launch
Investment
Acquisition / IPO
Analysis of startup patent applications: How do they correlate with companies’ milestones?
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Approach: A Quantitative StudyCombining two databases that have not been used jointly before:
Techcrunch’s Crunchbase
United States Patent
Office Database
Crowdsourced Startup Index Official Patent Applications Database
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Methodology◦Patent applications 2008 – 2012
◦US-based startups with 10K USD starting capital–9,208 startups
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Data Analysis
Startup Overview
Patenting Activity Findings
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Data Analysis
Startup Overview
Patenting Activity Findings
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Who Are The Companies?
Software/Internet73%
Biotechnology/Agriculture10%
IT/Hardware9%
Medical Industry8%
Industry
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Where Are They Located?
* 65% of the companies are based in these five states
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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What Is Their Funding Situation? Half of all companies received $ 1.5 M or less Very high standard deviation
Almost all companies received between 1 and 5 funding rounds Virtually half of them (48.5%) received only 1 round
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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What Is Their Exit Status?
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Data Analysis
Startup Overview
Patenting Activity Findings
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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How Many Tech Startups Patent?
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Tech Startup Industry & Patents• Software companies are less likely to patent than those in all other industries
• Hardware companies are more likely to patent than biotechnology and medical ones
• In Hardware and Medical, many companies with a high number of patents drive the high averages
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Bigger Companies Patent More• (Although not as much as would be expected!)
• Positive but very low correlation (r=0.15, p<0.001)
•Suggests that patents are just one factor in driving funding
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Are Startups in Certain States More Likely to Patent?
•No statistically significant differences between states, except for California (!)
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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How Can We Explain California?
+ bigger companies
+ software companiesCO
MPA
NY
SIZE
INDU
STRY
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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When Does a Startup File Its First Patent?
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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When Does a Startup File Its First Patent?
• Software: First patents are better distributed across rounds• Suggests patentable innovation arises when companies are more mature, or patents as a luxury
• Time between patent application and Round 1: +- 2 years
• Possibly decreasing patent signals over time: companies which took longer to get funding after the patent application, tended to receive total lower funding
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Data Analysis
Startup Overview
Patenting Activity Findings
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Methodology: Regressions and Basic Model• Multivariate OLS linear regression model
• Controlling for funding rounds, company age, industry and location in California
y = a + Patents* xpatents + funding_rounds* xfunding_rounds + age* Xage + hardmarket* xhardmarket + California* xCalifornia + e
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Signals to Investors: Does the Number of Patents Matter?
Patents just as
“Checkbox”
Vs. Number of patents
does matter
Finding: Number of patents associated with higher total
funding530k more per additional
patent
Limited investor
patent due diligence
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Patent Timing: When Do Patents Most Affect Funding?
• Significantly
• Very significantly
• Not significantly
Before Round 1
Rounds 1-3
Rounds 4 and after
Role of patents in
funding evolving over
time
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Patents, Exit & VC Funding• Companies with patents were more likely to be acquired (1.01)
• VC-backed companies tended to patent more than non VC-backed, and to have a higher absolute number of applications
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Role of Patents in
Tech Startups
More Patents,
More Funding
Evolving Importance in Startup
RoundsPatents,
Industry & Location
Reconciling views in VC & industry
Counseling clients
Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
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Innovation
Startups
@celialerman
Questions?
Full study:
http://ssrn.com/abstract=2610433