What It’s Worth: How Much Is a Patent Really Worth?
Patents aren’t just pieces of paper—they’re strategic weapons in the business world. For startups and innovators, patents can mean the difference between market dominance and obscurity. According to valuation expert Bharat Kanodia, understanding how to value a patent is crucial in today’s idea-driven economy.
Patents as a Multiplier of Value Patents protect innovation, reassure investors, and differentiate products. For venture capitalists, one of the first questions they ask is: “Do you have a patent?” That’s because a strong patent can multiply a company’s value by 10x, 20x, or even 50x. Whether during a funding round or acquisition, the presence of a valuable patent portfolio can make or break a deal.
The Cost of Protection There are over 3 million active patents in the U.S., with about 350,000 granted annually. Companies like IBM hold more than 90,000 patents. But protection comes at a price: filing for a patent, including legal fees, can cost up to $50,000. It’s a significant investment—but one that can yield enormous returns if executed strategically.
Why Patents Matter for Startups Dr. Stephen Colby, a veteran of the Silicon Valley startup ecosystem, says patents are non-negotiable for tech startups. As startups progress through seed, Series A, and Series B rounds, their valuation becomes increasingly tied to intellectual property. A smart patent strategy can lower the equity cost of raising capital and increase the odds of acquisition.
What to Patent (and Why) Many startups make the mistake of patenting what engineers think is cool—rather than what drives revenue. Bharat recommends focusing on features that support sales, marketing, and product differentiation. If a feature makes the product more sellable, it’s probably worth protecting.
How to Value a Patent: A 4-Step Method Bharat lays out a straightforward framework:
- Does the patent generate cash flow, improve product performance, or have value to competitors?
- Determine the number of years until the patent expires.
- Multiply the expected annual cash flow by the number of years left.
- Take 10% to 15% of that product—that’s your valuation range.
This isn’t a precise valuation but it gives a baseline for negotiations, especially in early discussions with investors or potential buyers.
Patents as Real Assets Patents are like gold, oil, or aircraft carriers—valuable, tangible, and tradable. Bill Gates once noted that if past ideas had been patented, we might never have progressed. The modern economy runs on intellectual property, and patents are its currency.
Tips for Startup Founders Bharat advises entrepreneurs to:
- Register relevant domain names and social media handles for their products
- Hire people who tinker and invent outside of work
Innovation needs structure, and patents provide that structure. In an increasingly digital and competitive world, protecting what makes you unique isn’t just smart—it’s essential.
