Investing in Intellectual Property: A wise investment option

With start-ups and innovation-centric firms blossoming across the country, the best way to get an edge over the competition is by investing in intellectual property.

A very efficient tool for overcoming competition is intellectual property. It helps innovators protect their product from misuse and earn hefty sums by licensing their product for manufacture. Therefore, it becomes imperative for innovators and start-ups to invest in intellectual property.

Intellectual property constitutes a significant part of the value of the individual or firm holding the IPR. IPR posseses a significant potential in monetary terms for both tangible and intangible assets that can be licensed or sold. At the time of raising funds for the firm or for further innovation, IP plays a crucial role and can pique the interest of big investors.

For investors, an IP represents the potential of the business or an idea. Pooling money into an idea that is either creating a new market or can potentially drive out competition in the existing market, is a profitable proposition. At the end of the day, it is a win-win for the innovator and the investor.

What is IPR investment?

If you are a venture capitalist or a private equity investor, you have the option of diversifying by investing in IP assets. Intellectual property investors can make good returns by investing in IP.

Intellectual property is anything created by someone’s intellect, be it a song, a movie, a painting, a machine, a computer code or a vaccine that can cure Covid-19. The creator of these assets, be it an individual or a company, can claim the right to the use of their creation and protect it from infringement or misuse.

If you have an idea that you can use to build a business, the first step for you is to understand intellectual property rights and how to secure your rights. The process may be expensive and time consuming, but investing in intellectual property will bring you rewards in the long run.

There are four kinds of IPR: patents, copyright, trademarks and trade secrets. If you have a patent, you have the sole right to build or sell your creation. Anybody trying to recreate your work will be liable to infringement charges. This gives you an edge in the market and helps keep competition at bay. Copyright, as the name suggests, is the right to copy. Copyright is primarily used in art and cinema where the creator holds the sole right for publishing their work. Both patents and copyrights are granted for a particular number of years. Trademarks on the other hand are signs, symbols or words that identify a product. For example, ‘Nestle’, the word is a trademark of the Nestle Group. Trade secret is confidential information that can be licensed or sold.

Why you should be investing in intellectual property

For innovators:

If you are an innovator or a start-up, funds may be your biggest worry. You may even be wondering if you should spend all your funds on product development. But since that’s the key to your business, product development is essential. Without your product, the business is void. You may also be worried about the competition and any ‘leaks’ about your product that could affect your business prospects. So, should you divert some of your funds to invest in an IP? It can be quite a dilemma.

However, investing in an IP is as important as product development, if not more. Your idea may be unique and you may see business opportunities. Protecting your idea from misuse or copy is also essential for your business. You do not want competitors to use your idea to develop newer products and beat you at your own game. If you are worried about funds, rest assured that having an IP will opens doors for you to investors. Most investors want to put their funds in reliable technology in which they see profit and future. By having an IP, you are securing the future of your company and investors.

For intellectual property investors:

If you are a venture capitalist or a private equity investor, you will probably already know that start-ups with IP are an asset to your investment portfolio. If you are on the fence about investing in intellectual property, here are a few reasons you should dive into it:

IPR investment is a safe bet. Companies with IPRs under their belt, are protected from legal trouble arising out of infringement. By backing a start-up with an IPR, you can also earn rewards when their product is licensed for production or even sold.

Risks to intellectual property investors

As with any other form of investment, IPR investment does entail risks. But you can overcome these risks by being diligent in your assessment of the asset before you invest.

Valuation: Intellectual property is a creation of the mind. While in some cases it can be a tangible asset such as a product or a machine, in most cases IP is an intangible asset. This is particularly true for art and music. It therefore becomes difficult to determine its value. However, to be able to successfully evaluate the IP, you can do a thorough market search and take into consideration the future worth of the IP.

Competition: Having an IPR may not necessarily mean that the asset is novel. For example, a start-up may have a patented technology in a particular area. However, a similar patented technology may also be available with another start-up. It is important to spend your resources on a due diligence of the IPR and its future worth before you nose dive into the investment. This is true for the innovator as well. A patent search is only the first step that tells you that you can patent your idea. However, it is not an exhaustive result on the same.

Final note: The technology and art sector in India is witnessing a boom. Start-ups are competing with each other for the best ideas to achieve sustainable goals and find solutions to problems in civic society. Ideas are coming up every minute but how many of these ideas can be developed into a business depends on various factors. If you are an aspiring entrepreneur with a million-dollar idea to change the world, first get an IPR. If you are an investor, back innovators by investing in IPR. The IPR ecosystem gives a boost to innovation and entrepreneurship.