The Study's Focus
The joint study aimed to explore the relationship between IP rights and startup success in securing venture capital (VC) funding. It also examined the signaling power of patents and trademarks as predictors of successful exit strategies for investors. In the context of an evolving economic landscape, marked by the impact of COVID-19 and changes in monetary policy, the study's findings provide valuable insights for startups and investors alike. As European startups face reduced VC investments and more challenging growth forecasts, IP rights have emerged as a critical means of capturing and signaling the value of intellectual assets to potential investors.
The study revealed several significant findings that highlight the importance of IP rights in the European startup ecosystem:
Approximately 29% of European startups have filed for registered IP rights, with notable variations across industry sectors. The biotechnology sector leads in IP intensity, with nearly half of startups employing patents or registered trademarks. Other IP-intensive sectors include science, engineering, healthcare, and manufacturing. Even in sectors with low IP intensity, startups still rely on trademarks to protect their intellectual property.
As startups progress through different growth stages, their utilization of IP rights increases. In the seed stage, only 10% of startups invested in by VCs have filed patent applications. However, this proportion rises to 28% in the early growth stage and 44% in late-stage rounds (Series C and beyond). A similar pattern is observed for trademarks, with 28% in the seed stage, 53% in the early stage, and 72% in the late stage.
Startups in Europe show a strong preference for European IP rights at all growth stages. More than 80% of startups with a patent in the seed stage have filed for a European patent application. The share of startups with a trademark that have filed for an EU trademark increases from 47% in the seed stage to 81% in the late stage.
The study found a strong correlation between filing for patent and trademark applications in the seed or early growth stage and the likelihood of securing subsequent VC funding. This effect is most pronounced in the early stage, with startups filing for trademarks having a 4.3 times higher likelihood of funding and those filing for patents having a 6.4 times higher likelihood. Startups that file for both patents and trademarks exhibit the highest likelihood of securing funding in both seed and early stages.
Filing for European patent and trademark applications is associated with an even greater likelihood of securing VC funding, with the strongest effect observed in the early growth stage. Startups with an EU trademark application have a 6.1 times higher likelihood of obtaining early-stage funding compared to those with only national trademarks. European patents are associated with a 5.3 times higher likelihood of early-stage funding, compared to 3.8 times for startups with only national patents.
Implications for European Startups
The study aimed to highlight the critical role of intellectual property (IP) protection for startups in Europe, particularly through patents and trademarks. By safeguarding their innovative assets with these legal tools, startups not only secure their ideas but also enhance their attractiveness to potential investors.
The study also underscores the significance of early adoption of IP rights. European startups can significantly boost their chances of attracting venture capital funding by filing patent and trademark applications during the early stages of their development. This early commitment to IP protection serves as a signal to investors of the startup's dedication to innovation and its potential for success.
Moreover, the findings emphasize the importance of investor awareness. Investors seeking to fund European startups should pay close attention to the presence and strength of IP rights within their potential portfolio companies. These rights not only safeguard innovations but also indicate a startup's dedication to intellectual property, innovation, and long-term success. In an era defined by digitalization, sustainability, and industry competitiveness, IP rights are a vital bridge for European startups to overcome their funding challenges and drive innovation in the region.