I met a group of angel investors the other day at an event addressing the selection of companies for investment.  I asked one participant whether intellectual property (IP) was part of their consideration. “We leave that to the attorney” was the answer I got.

I don’t disagree with that answer.  I am an attorney – so IP assessments is what I do, and leaving it to an attorney does provide for employment opportunities.  But regardless, even with an attorney doing the legal analysis, there are some questions investors should ask.  Along with assessments of the technology and the attractiveness of the market, IP-related questions can provide another piece of the puzzle as to the opportunities and the level of risk.

You might be asking, why should IP matter?  At early stages (e.g., angel investing) you are looking for an exit, not a return from product revenue.  You may exit long before a product ever earns any money.  But still, there has to be an exit.  Someone else needs to invest or buy the company or the like.  And for that next round, the company will need to have progressed on its journey toward success.  Part of that path is cementing IP rights to ensure the company will be able to sell something at the end of the journey and that it stands a decent chance against the competition.

Knowing there is a path to IP rights therefore starts at early stages.  So here are some basic questions that can help elucidate whether the path has been initiated.

Is it protectable?  Products and services can be protected by different types of intellectual property including patents, trade secrets, trademarks and copyright.  Has the company thought through what it can protect and what types of IP are appropriate?  For biotech and healthcare areas, a great deal of focus is placed on patents. In some product areas, such as therapeutics and medical devices, patent rights are fairly straight forward. In other areas, such as diagnostics, natural products (think microbiome) and digital health, patent protection can be more challenging and take some creative thinking. Trade secret protection also can play a key role, particularly early on in development.

Does the company have one or more issued patents?  I’ve heard a number of entrepreneurs announce they have a patent, only to find out what they really have is a patent application, not a granted patent.  A patent application is a good start, but whether it will come to fruition and whether when issued it will cover the scope of products or services envisioned is a factor in risk analysis.

Who owns the technology and are there strings attached?  It is not uncommon for companies to spin out from universities or from other existing companies.  In many cases, the university or originating company owns the IP rights.  You’ll want to know if there are licenses in place allowing the new company to use the technology and under what terms (such as for how long, what financial obligations, who owns improvements, and are the rights exclusive to the new company or can another player also get a license).

How crowded is the landscape?  In some cases, just knowing who else is playing in the same or related areas will be a starting point.  For a deeper dive, attorneys will often perform a search of issued patents and published patent applications to get a picture of who owns IP that could potentially block the new company.  The landscape also provides a sense of how much room there is for the new company to obtain patent rights and establish a strong competitive position as its technology develops.

How long will it last? Patents in the US generally have a 20-year life span measured from the filing date.  This seems like a long time, particularly if the patents were recently filed.  But in some cases, the timeline to product launch can be long (such as with therapeutics that undergo FDA review). In other cases, the technology may iterate very quickly such that the original patents can lose their value if they are too narrow in scope to encompass the changes.

All said, keep in mind that many of the companies are at early stages of product development and thus early days for IP development as well.  These questions may not all be answered.  But the important overarching question to ask is whether the company has considered each of these IP-related issues and if there is a strategy in place to address them (and deal with the answers) as the business develops.