Turn --- no venture capital without patents --- investment is dependent

(Amy, Professor of Law, Drexel University Thomas R. Kline School of Law, “The Antipatent: A Proposal for Startup Immunity,” pg online @ https://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=2808&context=nlr //pa-ef)

Technological advance is expensive. Virtually all founders require outside capital to move their concept into a commercialized product. In many cases, traditional sources of lending are not available to startups, because nascent firms without any sales records represent significant uncertainty and lack sufficient tangible assets to secure a loan. Entrepreneurial companies can require years to deliver revenue, the scope of a new market is uncertain, and there are numerous variables that might assist or prevent success along the way.351 For many, funding sources that specialize in new firms, including grants and angel and venture funding, are the most viable options.352 Venture capital has played a significant role in the development of new ideas and technological innovation in the U.S.353 One study estimates that venture funding is responsible for between 8% and 14% of all innovative activity in the U.S.354 Further, venture funding delivers roughly three times the inventive results as the same amount spent in the corporate sector.355 Selection for funding by a wellknown venture firm can become a seal of approval that allows the startup to obtain additional backing from other sources.356 Some venture firms provide management advice and other advantages that facilitate a funded startup’s success.357 Indeed, sometimes the distinction between a forgotten invention and a successful one is that the latter obtained early venture funding, advice, and introductions to critical players within the industry. As one example, a CEO in the biometrics information field stated that the company’s patent position was “a key question that came up during negotiations” with prospective investors.358 One study concluded that patenting by specialized entrants viewed patents as “especially critical to these firms in attracting venture capital funds.”359 Another found investor’s perceptions of startups with patents are positive, overall resulting in increased valuations and a higher likelihood of offers for funding.360 Venture firms can be extremely selective, choosing to fund as few as six out of one thousand applicants.361 It has been said that startups must seek patent protection as a prerequisite to venture funding.362 The reasons include the belief that patents applications should be filed to facilitate market exclusivity, which in turn leads to superior returns on investment.363 Some point out that funding decisions can be made more confidently in firms that hold patents, because these rights are a proxy for the quality of the startup’s technology.364 Additionally, patents provide investors with some return on their investment as a revenue source, whether through licensing or sale, particularly if the startup should fail.365