Report highlights importance of intellectual property rights for European startups
In October 2023, the European Patent Office (EPO) together with the European Union Intellectual Property Office (EUIPO) published a report entitled ‘Patents, trade marks and startup finance’, which looks at the funding and exit performance of European startups. The report found that European startups that have intellectual property rights (IPRs) are more likely to secure private equity funding, both at the seed stage and at the early growth (series A and series B) stage; and are more likely to have a successful exit.
At the seed stage, startups with IPRs are 2.6 times more likely to obtain funding than those without. The type of IPRs held by the startup also matter. The greatest likelihood of funding is found for those startups which hold both trade mark and patent rights – these startups are 3.4 times more likely to obtain funding than those without any IPRs.
At the early stage of funding (series A and B), startups holding any IPRs are 5.2 times more likely to obtain funding. The greatest likelihood of investment is, again, found in startups which hold both trade mark and patent rights; these being 10.2 times more likely to obtain funding.
Filing European IPRs further increases the likelihood of private equity funding in both the seed and early growth stages for startups compared to having only national rights. This effect is particularly pronounced in the early stage: EU trade mark applications lead to a 6.1 times higher chance of funding compared to a 2.8 times higher chance for national trade marks. European patents also have a 5.3 times higher chance of funding compared to a 3.8 times higher chance of funding for national patents. This may be because European level IPRs are an indication to investors that a company is ready to expand into more markets – thereby having a greater potential return.
The report defines a successful exit for investors as achieving an initial public offering (IPO) or acquisition. A startup having only trade marks has a 2.1 times higher likelihood of successful exit; having only patents gives a 2.4 times higher likelihood of successful exit, and having both patents and trade marks gives a 3.2 times higher likelihood of successful exit.
IPRs therefore seem to not only serve their purpose in and of themselves – namely obtaining control of the innovation and branding – but can also boost the prospects of a startup by increasing the likelihood it will receive the funding essential for continued growth. However IPRs are not exclusively important for startups, they can, for example, play a key strategic role for small and medium-sized enterprises (SMEs), as discussed here.
A further benefit of patents in the UK is the Patent Box. This is a government scheme designed to encourage innovation in the UK. It allows companies to pay a reduced rate of Corporation Tax (10%) on profits it makes from patented inventions which it owns or has exclusively licensed.
Barker Brettell is experienced in providing intellectual property services to startups. If you would like to discuss this matter further, please do not hesitate to contact the author or your usual Barker Brettell attorney.
