Tuesday, 31 May 2016

Investing in Patents: a book for startup investors

Weighing in at 144 pages is a new title that should instantly attract the attention of readers of this weblog: Investing in Patents, promisingly subtitled Everything Startup Investors Need to Know About Patents.

This is an unashamedly patent-positive book, written from the perspective of an author who has experienced patents from various standpoints (as an inventor, patent attorney, businessman and investor) and who can attest to their strengths, weaknesses, attractions and detractions.  His manifesto is set out early in the book:
"Patents, when viewed as an investment, have the same risks as startups: technology risk and market risk. When these risks exist, a patent has purely speculative value, and zero inherent value. As the risks are overcome, the patent begins to have actual, inherent business value. The best analogy is stock options, where the only real value comes when they are in-the-money.

Your author has experienced the invention and patent business from all sides: as an inventor with 30+ patents in multiple industries, as a patent agent/ attorney who drafted nearly 1,000 patent applications for companies big and small, as an owner/broker of sizeable patent portfolios, as a co-founder and COO of an angel/venture backed startup that had nearly 100 patents, and as a CEO of BlueIron, an investment firm that invests solely in patents for startup companies.

BlueIron IP invests in patents. Our investment model is to pay all the patent costs for a startup, and let the startup finance those costs over the lifetime of the patent. Essentially, BlueIron allows the startup to take a mortgage on their asset so that the startup can deploy that capital elsewhere.

As a result of this business model, BlueIron must ensure that it holds investment-grade patents.

The strategies and techniques in this book come from BlueIron’s experience in making those investments".
While the book has an obvious function as an advocate for the author's investment company, there's more too it than that.  The text is clear and, probably on the wise assumption that its readership will consist of busy business folk and investors rather than university professors, it is refreshingly free of abstruse vocabulary, elitist jargon and thickets of bibliographic footnotes.  While it reads as a work crafted by an American for the US market, it is of considerable relevance and interest to readers from other places on the planet, both on account of its generalised and widely applicable content and because not everyone who considers investing in patents in the US is necessarily American.

The author's thesis can be summarised by the principle that you only need to do better than average in order to score a positive return on your investments and that, therefore, you should take a sensible probability-based approach, supplementing actual knowledge where necessary with rules of thumb (such as the "25% rule" for royalties). For sure, since every investment lives within its own technological and commercial ecosystem, it's not possible to come up with firm rules that work in every case. This is why some patents will do well, others will be relatively neutral and others again will disappoint -- as the author concedes. 

All in all, this book isn't the next Moby Dick, so if you read it you won't be left all at sea with patent investment.

You can find out more about the book and its author by clicking its website here.

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