Boardroom PeopleAs Techweek kicks off in Chicago this week, it seems appropriate to discuss one of the most important first steps startups should take: securing protection of their intellectual property.

One of the most influential factors that play into the success of a startup is investment.  This is often thought of in financial terms, with investors contributing capital to the startup.  However, a startup’s investment in protecting its intellectual property is equally as important. There are several reasons why, but this post will focus on one significant point: Capital Investors Care.

Potential investors look into whether startups have secured IP protection.  First, IP protection is a factor considered in the valuation of the company.

Second, IP protection gives confidence of just that: protection. Intellectual property laws work to encourage entrepreneurs to invest the time and money developing a product that consumers will want.  By allowing the entrepreneur to obtain ownership over the particular innovation, there is a legal remedy against others stealing the product or ideas.  This gives potential investors confidence in making an investment.

Third, startups that have secured IP protection can show that they, themselves, have abided by the laws and have actual ownership over the ideas and products.  Significantly, investors understand this helps to protect the startup from potential lawsuits down the road, as a stake in ownership is made clear upfront. Often, startups work with other companies to develop products; however, there can be a dispute later down the road about which company owns which product, or parts of the product.  Beware: just because you think you own the product does not mean your co-developer agrees!

And lastly, studies back it up.  A paper authored by Professors David Hsu and Rosemarie Ziedonis focused on the relationship between patents secured by startups and capital investment.  The authors concluded that startups that doubled their patent application portfolio received a valuation 24% higher than those with a lower number of patents.  This was represented in about $12 million more in investment dollars for the average startup.

Techweek is a time to discover, celebrate, and experience innovation; however, it is also a time to consider ways to improve and grow.  For the startups out there, keep in mind the importance of protecting your investment by securing IP protection, and the ways that could attract potential investors’ attention.