When discussing their barriers to entry, many entrepreneurs cite their pending patents. While obtaining patents is worthwhile, many IT focused VCs do not believe that they alone create sufficient barriers.

There are two reasons for this. First, the US Patent and Trademark Office can take years to issue the patent you are pursuing. In our rapidly changing markets, a new entrant could enter, dominate and exit the market before your patent is approved and legal action is possible.  Furthermore, the market could evolve sufficiently to render the patent meaningless by the time it is granted.

Second, the costs of enforcing patents is high. In order to stop a competitor from infringing on a patent your company will need to spend hundreds of thousands, if not, millions of dollars. That type of suit can distract management and absorb vitally needed resources. Furthermore, VCs are aware that they will be paying for any suits that take place during the infancy of the company.

However, VCs do value patents. Many VCs believe that patents present a deterrent to competitors and can be a valuable asset at the companies exit. That said, it is important for entrepreneurs to understand the limited importance that VCs place on patents in order to place the proper emphasis on these assets when they present their company's barriers.

Comments

[Bob Warfield]

One thing on patent legals: it is dramatically cheaper for the patent holder plaintiff than for the defendant. The legal advice public companies I've worked for who've defended against patent trolls was that it would cost the defendant an average of $2M just to get to trial, and it would cost the troll perhaps $250K at most.

I think the time to grant is a much more effective argument about the value of patents than the costs involved. If you're still around when it grants, you likely are solvent enough to pay the legals.

Cheers,

BW

[Mark Davis]

Thanks Bob.

[Richard Hollerith]

Most informational technologists think patents are evil, so if your venture depends critically on information technologists who do not have a lot to gain or lose from whether your venture succeeds or fails, you open yourself up to "altruistic punishment". In the late 1990s many large corporations forbade their information-technology employees from installing Linux on the corporations computer, but many times the technologists did it anyways because they perceived it as a battle between good and evil.