🌉 6 Misconceptions About Licensing Patents for Startups

It's not (always) rocket science.

Note: this is the very start of a bi-weekly series where I’ll do deeper dives into important questions re patent licensing and/or interviews with experts. Let me know what you’d like me to cover in future posts in the comments below.

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I had a conversation this week with a friend about Action Potential. He's a talented engineer and launched a successful startup in mental health, but he never considered licensing research before starting out. To him, licensing patents was all about deep tech and confusing, expensive consults with patent lawyers before even getting the ball rolling. Starting a startup is tough enough, right?

Well, in this blog post, I'm aiming to clear up some misconceptions about patent licensing as objectively as I can. I've never tried to paint an overly rosy picture of this path, but I do think it's an underutilized route, and that's to the detriment of everyone involved: the founders, the researchers, and the broader society often funding the research.

Before diving in, here's a simple thesis for you. Over the last 20 years, entrepreneurship has exploded. What was once for the absolute crazies is now a perfectly acceptable, almost formalized career path. And the stats back this up. Let's not even go back too far, just from 2015 to 2022, the number of new businesses launched in the US went up from 2.8 million to over 5 million!! That's almost double in just 7 years. Why? Because launching a business is getting simpler year over year, and the more success stories that emerge, the more people are drawn to starting new businesses. With the latest AI wave, I expect this trend to spike.

In a similar vein, the number of published research papers in science and engineering fields went up for ~ 1 million in 2000 to over 2.8 million in 2022. I'm convinced this trajectory will only steepen over the next decade – we're on an exponential curve with technology.

So, where's the gap? The big challenge of our time, I believe, is accelerating the rate at which we bring research from the lab into the real world. My goal with Action Potential is to give this effort a boost.

Now, back to those misconceptions. What I'm about to do is bust some myths around patent licensing, a path less travelled. 😊🚀

1/ If a patent is out there, it’s already too late

Not at all. You’d be surprised how many solid patents are just gathering dust because the researchers don't know how to market them, big companies are too caught up in their own priorities and don’t look to license them, and there's no experienced operator willing to run with the invention. Governments are pumping money into tech transfer offices for a reason. Canada, as an example, has put $100 million towards funding more ways to help retain and commercialize Canadian IP.

2/ Patents only benefit large corporations

While it's true that big companies, with their armies of patent lawyers, have an asymmetric advantage, how often do we see small startups outpacing and beating the big guys? Access to an exclusive patent doesn’t mean you can just sit back and play defense. The same startup principles apply – you need to hustle and get your product to market fast. This is why researchers and inventors often aren't the ideal startup CEOs for commercializing their IP; they can be too attached to their work, aiming for perfection rather than getting it out there to learn and iterate quickly.

Your goal in licensing a patent is to have the right foundation to build on, not to move at the pace of a large corporation.

3/ Negotiating to license a patent is hard and expensive

I won’t sugarcoat it – delving into patents can be tough, but the payoff is often huge. When you dive into patents in an area you’re passionate about, like climate or health, you often end up with a solid grasp of future tech trends in the space. This understanding is invaluable, whether you license the patent or not.

In my experience, most tech transfer offices and researchers are incredibly open and supportive when you reach out to discuss their research and patents. Starting that conversation is easier than you think – a simple email or phone call to express interest is all it takes. I'll share more details on this in future posts. If you’re interested, let me know in the comments below what questions you’d like me to cover.

Regarding costs, I firmly believe you don’t need a patent lawyer from day one. That expense can often be deferred until the last step, allowing you to leverage your own sweat equity. And with recent AI innovations, it’s never been simpler to dissect patent families and cut through the legalese to uncover the core IP.

4/ A patent is useless without a team to build it

When you license a patent, you’re often negotiating an equity-only deal with the patent holder, meaning they have a vested interest in helping you succeed. You’re not just getting access to the patent but also to a research lab with post-doc researchers who could be excellent CTOs and technical hires when you’re ready to start. The lab's research equipment is a huge advantage too – replicating that would cost millions and take years, but it’s all readily available to you.

5/ Investors don’t value patents and just want simple SaaS startups

That’s a myth. Investors are smart; they're always looking for what gives you an edge. Is it timing? Deep domain knowledge? A patent, especially with a university and researcher on your cap table, is a huge competitive advantage and a solid foundation for investors. Skeptical? Look at the valuations of Stanford-backed startups. Last one I looked at had a $25 million seed valuation (not that valuations are the best predictor of future success but certainly signals a premium).

6/ Licensing a patent means instant market traction

Guess what? Licensing the patent is just step 1 of your journey. 99% of a startup is execution, having a talented and invested researcher and their lab beside you will help but you will absolutely still need to dedicate countless hours to finding Product Market Fit and nailing down a real legitimate commercial use case for the invention. Sorry, no silver bullets here. 🤷

Are there any misconceptions (or 😲 conceptions) that come to mind that I missed? Share in the comments below!

I’ll leave you with this beautiful poem:

The Road Not Taken

By Robert Frost

Two roads diverged in a yellow wood,

And sorry I could not travel both

And be one traveler, long I stood

And looked down one as far as I could

To where it bent in the undergrowth;

Then took the other, as just as fair,

And having perhaps the better claim,

Because it was grassy and wanted wear;

Though as for that the passing there

Had worn them really about the same,

And both that morning equally lay

In leaves no step had trodden black.

Oh, I kept the first for another day!

Yet knowing how way leads on to way,

I doubted if I should ever come back.

I shall be telling this with a sigh

Somewhere ages and ages hence:

Two roads diverged in a wood, and I—

I took the one less traveled by,

And that has made all the difference.

🎨 About the artist

Vincent Di Fate, an well-known American science fiction artist who has influenced many others in the field.