An Analysis For The Valuation Of Venture Capital-Funded Startup Firm Patents

Name
An Analysis For The Valuation Of Venture Capital-Funded Startup Firm Patents
Cite
12 B.U. J. Sci. & Tech. L. 170
Year
2006
Bluebook cite
John E. Dubiansky, An Analysis For The Valuation Of Venture Capital-Funded Startup Firm Patents, 12 B.U. J. Sci. & Tech. L. 170 (Summer 2006)

Author
John E. Dubiansky
URL
12 BUJSTL 170

Item Type
article
Summary
The pattern of innovation in the United States is constantly shifting. The rise of the venture capital industry has lead to the emergence of startup firms founded to commercialize new technologies. FN1 The rise of startup innovation is, in turn, challenging the in-house R&D model which has dominated American industry since the turn of the century. FN2 As innovation moves outside the locus of large firms, a new market is emerging in the transfer of intellectual assets. Two trends suggest that this market will continue to grow as an alternative to venture capital funded commercialization.

First, there is a recognized breakdown in the effectiveness of in-house R&D in many industries. FN3 The pharmaceutical pipeline is taking in increasingly larger sums of money and producing fewer and fewer drugs. FN4 Traditional R&D giants are looking to revitalize their internal efforts. FN5 Consequentially, firms are turning outside to find new ideas.

Second, there are a growing number of entrepreneurs who have stepped in to fill this need. There has been a growth of independent invention workshops, and in firms who actively search for inventors. FN6 Industries such as semiconductors are turning to “fabless” commercialization models. FN7 Independent private laboratories and universities are successfully raising revenue through licensing. FN8 Commentators suggest that the true growth opportunity is not in idea generation, however, but in the role of intermediaries who are able to commercialize the abundant supply of new ideas. FN9

Venture capitalists are increasingly getting involved. The new potential of the R&D licensing market, coupled with the slump in the IPO market, has *172 increased the attractiveness of using technology transfer as an exit strategy. Firms such as Cerian Technology Ventures have sprung up to assess and remarket the intellectual property of failed startup firms. FN10 The Venture Capital Journal has recently run several articles discussing the potential of mining portfolio companies' patent port-folios for value. FN11

The investment community has traditionally been weary of patent-based transactions. The Harvard case study of Aberlyn Capital Management FN12, for example, highlights the risks of using patent-backed loans. Often, unwary investors can end up stuck with a patent that is effectively worthless when the firm which created it failed. For these transactions to gain acceptance, their risks and rewards must be better understood. This requires a tool for valuing startup patents which incorporates the risks of technology transactions.

Excerpts and Summaries

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Thursday 09 of August, 2012 01:05:58 GMT
by Michael Risch


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