EU study shows
Startups with IP are more
Likely to succeed

The European Patent Office (EPO) and the European Union Intellectual Property Office (EUIPO) have released a 61-page study showing that EU startups that secure intellectual property (IP) rights protection are 10.2 times more likely to secure early-stage funding than those that do not.

The startup ecosystem in Europe has boomed in recent years, with venture capital (VC) deals reaching EUR 110.8 billion in 2021, compared to EUR 9.4 billion in 2013. This is said to be due both to a more mature European VC industry and to growing interest from non-European investors.

(In comparison, VC investment in the US was $59 billion in 2013 and $345 billion in 2021.)

IP rights in the EU are similar to those in the US, with some variations. Certain subjects are covered by EU law, while other areas are covered by the IP laws of the individual states.

As we noted in this blog in June, the EU recently launched a unitary patent system that allows patent applicants to apply for a single patent that will be valid in all European countries that have joined the system so far.

EU IP law covers:

• Patents
• Copyrights
• Trademarks
• Appellations of origin and Geographical Indication (such as geographical (e.g. Champagne, Port or Bordeaux) or non-geographical names (e.g. Feta or Basmati) associated with certain products)
• Design Rights (similar to design patents in the US)

According to the EPO,

On average, 29% of European starts-ups have filed IP rights, with important differences between industry sectors. Biotechnology is by far the most IP-intensive sector, with nearly half of start-ups using patents or registered trademarks. Other IP-intensive sectors include science and engineering (with 25% of patent users and 38% of trademark users), health care (20% of patent users and 40% of trademark users) and manufacturing (20% of patent users and 36% of trade mark users).

According to the study,

The filing of patent and trade mark applications in the seed or early growth stage is associated with a higher likelihood of subsequent VC funding. This effect is particularly important in the early stage, with a 4.3 times higher likelihood of funding for startups that filed for trade marks, and a 6.4 times higher likelihood of funding for startups that filed for patents. Startups that filed for both trade marks and patents show the highest likelihood of funding in both the seed and the early stage.

According to João Negrão, Executive Director of the EUIPO,

Intangible assets represent the vast majority of the value of a business today, and formal intellectual property rights, such as trade marks, are not only legal safeguards for investment in intangibles, but the key to securing financing and collaborations. This is especially important for newly started, innovative companies, who typically have few assets at the initial stage aside from their intellectual capital. Today´s study shows that 27% of the start-ups analysed had applied for a trade mark, more than any other IP right.

Other findings of the study include:

• Owning IP rights boosts startups’ ability to raise funds, especially for deep-tech industries with higher capital needs
• Biotechnology sector leads in the use of patents and trademarks, with nearly half of the sector’s startups seeking these essential rights
• More startups in Austria, Switzerland, the Czech Republic, Germany, Finland, France or Italy tend to apply for patents and trademarks

Of interest to investors, the study found that:

The filing of patent and/or trade mark applications is associated with a more than twice as high likelihood of successful exit for investors. The highest likelihood of initial public offering (IPO) or acquisition is observed for startups that filed for both patents and trademarks. A higher likelihood is also observed for startups that filed for European IP rights than for those that make use of national-level rights only.

The EPO is introducing a Deep Tech Finder, allowing “potential investors to identify and assess startups with pioneering and promising new technologies.”

Just like the haiku above, we like to keep our posts short and sweet. Hopefully, you found this bite-sized information helpful.