The remarkable growth of the European startup ecosystem in recent years has been nothing short of spectacular, propelling the European economy to new heights. Startups are increasingly viewed as the engines of economic growth, with the potential to tackle the pressing challenges of digitalization, sustainability, and industry competitiveness through innovative solutions. However, despite these achievements, Europe still faces a significant funding gap when compared to the United States. In this blog post, we delve into a study, which was conducted by the European Patent Office (EPO) and European Union Intellectual Property Office (EUIPO), that explores the influence of intellectual property (IP) rights, specifically patents and trademarks, on European startup access to finance.
The startup landscape in Europa
European startups are thriving, with venture capital (VC) deal values skyrocketing from EUR 9.4 billion in 2013 to an impressive EUR 110.8 billion in 2021. This growth has given rise to a new generation of European ventures and a more mature VC industry, offering a substantial boost to the European economy. Policymakers now see startups as key players in addressing digitalization, sustainability, and industry competitiveness. However, the challenges of funding startups and helping them achieve successful exits remain.
The influence of Intellectuel Property (IP)
Intellectual property rights, including patents and trademarks, have a crucial role to play in helping European startups access finance. These rights are vital in protecting a startup’s innovative ideas and reducing information asymmetry between entrepreneurs and investors. Here are some key findings from the study:
1. IP Intensity across sectors
On average, approximately 29% of European startups have registered IP rights. The IP intensity varies across sectors, with biotechnology leading the way at nearly 50%, followed by science and engineering (patents at 25% and trademarks at 38%), healthcare (patents at 20% and trademarks at 40%), and manufacturing (patents at 20% and trademarks at 36%).
2. Growth in IP use
Startups tend to increase their use of IP rights as they grow. In the early stages, 10% of startups have filed for patents, while this number rises to 28% in the early growth stage and 44% in the late stage (Series C and beyond). The use of trademarks follows a similar trend, with 28% in the seed stage, 53% in the early stage, and 72% in the late stage. Notably, over 80% of startups with patents in the seed stage have filed European patent applications, and the proportion for trademarks increases from 47% in the seed stage to 81% in the late stage.
3. Link to VC funding
Filing patent and trademark applications in the seed or early growth stage is associated with a higher likelihood of securing subsequent VC funding. In the early stage, startups that filed for national trademarks had a 4.3 times higher chance of funding, while those with national patents had a 6.4 times higher likelihood. Startups that filed for both national trademarks and patents showed the highest likelihood of securing funding in both the seed and early stages.
The filing of European patent and trademark applications was associated with even higher chances of obtaining VC funding, especially in the early growth stage. Startups with European trademark applications had a 6.1 times higher likelihood of early-stage funding, compared to 2.8 times for those with only national trademarks. European patents also exhibited a 5.3 times higher likelihood of early-stage funding, compared to 3.8 times for those with only national patents.
4. IP Rights and investor exit
Patent and trademark applications were linked to a more than twice as high likelihood of successful exit for investors. The highest likelihood of initial public offering (IPO) or acquisition was observed for startups that filed for both patents and trademarks. European IP rights also increased the likelihood of successful exits compared to startups using only national-level rights.
Conclusion
The spectacular growth of the European startup ecosystem has presented opportunities and challenges. While the funding gap with the US remains, intellectual property rights, including patents and trademarks, play a significant role in bridging this gap. Startups that invest in IP protection demonstrate their commitment to innovation and can signal their value potential to investors. As Europe navigates the evolving landscape of startup funding, the importance of IP rights in supporting and accelerating startup success is undeniable.
IP rights not only safeguard intellectual assets but also serve as powerful signals to investors, boosting the chances of securing financing and achieving successful exits. As Europe looks to reinforce its position as a global startup powerhouse, nurturing and leveraging IP assets should be a key strategy for entrepreneurs and policymakers alike.
Startup IP Voucher
LIOC recognises the importance for startups to secure their IP rights to boost their growth. At the same time we are aware that the intital investment can form a significant hurdle as a startup. This is why we have decided to help out startups with securing their initial patent and trademark. These two rights form a crucial basis for securing protection, growing their business and start building their IP portfolio. Read more about how we help startups on our page on our Startup IP Voucher.
If you want to find our if you should be obtaining IP rights, or if you have any questions about IP, do not hesitate to contact any of our IP specialists.
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