Seven reasons why startups should file provisional patents when fundraising
Updated: Jun 4, 2021
Your startup proved its product-market fit. You are now raising funds with the next round of venture capital funding. For this round, you need to show your investors the value of your business. Most investors won’t sign NDAs. How far can you describe your technology? And as you are stretching your last dollars, it is a good idea to shorten your runway with patent expenses?
1. Provisional patents are a lot easier than real patents
Provisional patents are the next best viable option after a real patent. Provisionals are the MVPs (Minimum Viable Product) of patents. There is no strict formal requirement. No need to write “patent claims” with a legal language. Only the technical content matters. There is no obligation to hire an attorney — although there is more on that in point #4 below. Provisionals are a way to file patents without the formal requirements of a real patent.
This is not to say that it’s to be done in a weekend, but if you look at what a real patent filing looks like compared to a provisional patent, it is a lot laxer. Explain it in a clear human language. Not lawyerspeak, or whatever you think that is. Not circumlocutory and superciliously verbose demonstrations of your mastery of the field’s language. No one cares. Also, don’t sell. We’re looking for Wikipedia, not Wired.
2. It helps manage your institutional knowledge
Ensure that copious technical notes are meticulously aggregated, and every idea, whether implementable or not with current components, needs to be fully and completely itemized. Add drawings, screenshots, photos, or CAD-generated illustrations. Explain how you are solving a technical problem, and all possible alternative solutions — not just the one that works for you. This is your task. Your startup has a tech team. They can explain the tech. Even if they don’t want to, they can. By filing provisionals you are creating objectively assessable assets out of knowledge thus far locked in the heads of the team.
3. You will articulate your technical differentiations
To explain how you are solving a technical problem, you first need to understand how your technology is different from the state of the art. Said in business terms: you need to understand the technical defensibility of your business. Patents require you to go through a process of prior art searches, annotations, revisions, and additional ideation that can contribute enormously to articulating and gaining a deep understanding of the technology’s market positioning.
4. A provisional is a lot cheaper than a real patent
Be aware that you most likely won’t do it right if you do it only by yourself. Self-prepared provisional applications often fall short of content to meet the minimum requirements for obtaining a valid patent later. Do not send it off without a patent attorney’s review, while it is technically possible, the process is as finicky as it is consequential. Filing a provisional patent costs a couple of hundred dollars in fees, to which you need to add a couple of thousand dollars of attorney time to help fill critical gaps in the content.
5. It signals to investors that you are doing the right thing
Investors want to see they are sitting with adults. Filing patents can be seen as basic operational hygiene. You won’t get investments because you showered and wore decently appropriate clothing, but it will certainly be noticed if you don’t. You should care enough about the legal aspects of your business to spend the time and effort on protecting yourself. It is sending a signal to your investors that you are doing the right thing, and it will alleviate some concerns during the due diligence.
6. It demonstrates your team’s ability to execute
It also shows your team’s ability to execute and reach milestones. Everyone knows how hard it is for startups to launch a product and to start generating revenues. Most of the self-imposed deadlines are not met. And investors worry about that. Filing provisionals is a very simple way to meet a deadline: getting something filed to prove your company owns a technology before showing this technology to everyone. It demonstrates your team’s ability to execute. One opportunity to score a point.
7. It creates an official record of what your company owns
It looks professional. When a provisional is filed you receive an official receipt from the U.S. Patents and Trademarks Office, with a filing number and a filing date. It looks official and it is official. You secured a legal proof-of-date, even if you do not pursue any real patent out of it later. You create official records of what your company owns and that can be shown in your data room: actual patent numbers, dates, titles, and contents. Choose a title for each provisional that is technical, not marketing. It could almost sound like a 1-line summary for each of your inventions.
In a seed round, investors look for a team they believe in. In later rounds, investors look for a business that can scale. By filing provisional patents, you demonstrate that your company is a real company with a team that can execute. You articulate clearly the defensibility of your technical differentiation. You gain credibility. Your company is now ready to be funded by professional VC investors.
If you have a suggestion for the next topic I should cover, please leave that down below. If you disagree with me, be sure to leave your comment. This article is not a legal advice.