Patent Strategies of Startup Companies - Stanford Law School - Data Analysis (July 2015)
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How does a patent strategy affect a tech startup company’s growth? This is a fundamental question for technology entrepreneurs, investors, lawyers and the innovation system as a whole. In this study, I shed light on this issue by conducting an empirical analysis of the patenting strategies of technology startups, examining the relationship between a company’s patent applications and different events over the company’s life: rounds of investment received, company acquisition and closure. I provide the first comprehensive cross-industry analysis of this question, by analyzing the patent portfolios of United States startups listed in CrunchBase, a crowd-sourced registry of tech companies used by the startup industry. By looking into these companies’ public patent applications from the United States Patent and Trademark Office (USPTO) database between 2008 and 2012, I examine the patenting patterns of startups as they progress through funding rounds. Full study: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2610433 Contact: @celialerman
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Patent Strategies of Startup Companies - Stanford Law School - Data Analysis (July 2015)
- 1. Patent Strategies of Technology Startups CELIA LERMAN STANFORD LAW SCHOOL - FULBRIGHT SCHOLAR ROTMAN, SZLAK & LERMAN – ARGENTINA JULY 2015
- 3. 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
- 4. 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
- 5. Approach: A Quantitative Study Combining 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
- 6. 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
- 7. Data Analysis Startup Overview Patenting Activity Findings Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
- 8. Data Analysis Startup Overview Patenting Activity Findings Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
- 9. Who Are The Companies? Software/Internet 73% Biotechnology/Agricult ure 10% IT/Hardware 9% Medical Industry 8% Industry Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
- 10. Where Are They Located? * 65% of the companies are based in these five states Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
- 11. 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
- 12. What Is Their Exit Status? Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
- 13. Data Analysis Startup Overview Patenting Activity Findings Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
- 14. How Many Tech Startups Patent? Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
- 15. 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
- 16. 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
- 17. 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
- 18. How Can We Explain California? + bigger companies + software companies COMPANYSIZE INDUSTRY Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
- 19. When Does a Startup File Its First Patent? Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
- 20. 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
- 21. Data Analysis Startup Overview Patenting Activity Findings Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
- 22. 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
- 23. 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 funding 530k more per additional patent Limited investor patent due diligence Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
- 24. 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
- 25. 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
- 26. Role of Patents in Tech Startups More Patents, More Funding Evolving Importance in Startup Rounds Patents, Industry & Location Reconciling views in VC & industry Counseling clients Celia Lerman – Stanford Law School / Rotman, Szlak & Lerman – @celialerman
Editor's Notes
- More Patents, More Funding: Patents associated with higher funding Evolving importance of patents: Until Round 3, especially 1-3 Market: hard Tech intensive industries are more sensitve to patents Location: Companies in California patent more! Reconciling: most of them in your industry are patenting Counseling clients: now we have more data