Startup investors take many factors in consideration when choosing to fund a startup. For some, the founding team matters most. Other investors like to invest in companies within a specific industry. Other factors like venture backing, profitability, or high growth markets may matter to potential investors.
Whether or not a company has patents or intellectual property is one key metric many investors track – especially for those interested in hardware startups. Investing in a company with patented technology is strategic for a number of reasons. Startups with patented technology or intellectual property rights can make for appealing acquisitions by larger incumbents. For example, in 2014, Google took an interest in Nest’s intellectual property and acquired the company for $3.2 billion. Acquisitions are one of the many ways investors can see big returns on early stage investments.
By patenting technology, startups can also work to attain greater market share. Tech companies with patents are often able to license technology to a greater share of the market because alternatives are now limited. Greater market share can lead to better performance metrics, increasing the likelihood of returns for investors.
While having patents doesn’t guarantee a company’s success, it certainly doesn’t hurt. But is this something investors in online startup investing care about? We broke down the funding deployed to startups that raised money online from retail investors (through Regulation Crowdfunding) from January 2018 through May 2022 and examined how often they held patents.
The vast majority of companies that raise online have no patents. That said, companies that raised $1 million to $5 million had the highest share of patents granted or pending, at 40%. Just 18% of companies that raised $500,001 or less held patents or had patents pending.
Zooming out, only 23% of startups raising capital online had patents, pending or fully secured. However, 32% of capital raised between January 2021 and May 2022 went to that 16% of startups. It seems that when considering an investment in a startup, many retail investors take patent status into consideration. (Want to easily identify whether a startups has patents? Become a KingsCrowd Edge Member to see patent status in the Differentiation rating category for every online startup investment opportunity.)
Note: All data on online startup investing used for the Chart of the Week comes from the KingsCrowd database and represents a snapshot of the crowdfunding market.
Wall Street has Morningstar, S&P, and Bloomberg
The equity crowdfunding market has KingsCrowd.
About: Olivia Strobl
Olivia comes to KingsCrowd with a background in venture capital and technology. She spent time at Glasswing Ventures, an AI-focused venture fund in Boston, before joining the KingsCrowd team. There she helped develop machine learning algorithms for the opportunity qualification of preseed and seed-stage startup companies. Prior to her time at Glasswing, Olivia worked in a lab studying the neural correlates of attention. She holds a degree in Neuroscience from Wellesley College.