Got a Patent? Sell the Company! Element8 Angel Conference, Seattle

This is an excerpt from a talk I gave at the Element8 angels workshop in Seattle: Investing a World With Few Exits.

Some of the key points from my talk:

  • I believe only 25% of all companies that could have been sold actually end up successfully exiting
  • If a company misses the ideal time to exit, then the most likely result is that it will fail completely
  • I’ve identified five failure mechanisms
  • This talk describes the failure mode driven by intellectual property infringement
  • Patents have become a much more valuable tool for entrepreneurs and angels
  • Patents are a “Double Edged Sword” and create serious risks for smaller companies
  • Many big companies take the attitude that they will just use the IP and let the lawyers figure it out later
  • Defending your patent could cost $10 million and take ten years
  • Big companies know that many times a small company can’t even afford to start the suit, so they will win by default
  • If you have a good patent, the only reasonable strategy is to sell the company as soon as possible after the patent is granted
  • Or when you have disclosed the technology – whichever is sooner
  • The risks of not selling early just aren’t a good business, or investment, decision

5 thoughts on “Got a Patent? Sell the Company! Element8 Angel Conference, Seattle”

  1. Basil, thank you for the post. In cases where the patent was infringed, would the company benefit by selling to a competitor of the infringing company? Would there still be value there?

    1. Excellent question, Richard. Selling after the infringement might be possible, but I’m sure the price would be a small fraction of what could have been achieved prior to the infringement.

  2. Surely this is a catch-22. If you engage with a large company in an effort to be acquired, then during due dilligence the large company will learn all they can about you technology and copy your technology?

    1. Rolf, it’s certainly a “double edged sword” but I am not sure if it qualifies as a “catch-22.” The challenge for patent holders is that to be enforceable a patent has to describe all of the critical elements of the intellectual property. So once, the patent is public you’re pretty vulnerable. It’s also why a clear exit strategy is critically important. You really don’t want to start the process and not complete a transaction. Good patents should be owned by big companies with the resources to defend them.

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