Top Venture Capitalists Demand Real Patent Reform, Put To Rest Myth That VCs Love Patents
from the stupid-myth dept
One of the more annoying patent myths that makes the rounds is that startup entrepreneurs “need” patents, and that it’s one of the key things that many venture capitalists “require” before they invest. This is a myth that we’ve been trying to debunk for quite some time, showing how many of the best, most successful venture capitalists out there have explained that patents are not important to them and, in fact, that patents tend to hold back and hinder innovation. Two new bits of information should make this point even clearer.
First up, the App Developer’s Alliance, EFF and Engine Advocacy have teamed up to send a letter to Congress from many of the most well-respected, successful venture capitalists out there, urging significant patent reform to stop patent trolls and patent abuse. Included in the list of signatories (among many others) are investors like Fred Wilson, Brad Burnham, Mark Cuban, Reid Hoffman, John Lilly, Bijan Sabet, Brad Feld, Ron Conway, Bill Gurley, Jeff Clavier and Paul Graham. The list is like a who’s who of the investors that startups these days put on their wishlists. The idea that patents are what drive investments definitely does not appear to be the case.
The related bit of information is a new research study, done by Robin Feldman, looking at the view of patents from the venture capital perspective, surveying around 200 venture capitalists and their portfolio companies about their views on patents — which are decidedly negative:
Both the companies and the venture capitalists overwhelming believe that patent demands have a negative impact on the venture-backed community, with all or most of those assertions coming from entities whose core activity involves licensing or litigating patents. These impacts are described in terms of the specific costs expended by the companies and by the distraction to management, engineers, and other employees. Most important, participants described the human toll that patent demands have had on entrepreneurs. In addition, when making funding decisions, the vast majority of venture capitalists do not consider the potential for selling to assertion entities if the company fails. On the flip side, 100% of venture capitalists indicated that if a company had an existing patent demand against it, it could potentially be a major deterrent in deciding whether to invest.
In other words: having patents does not significantly impact the decision to invest, but being the target of patent trolls has significant consequences for entrepreneurs, and makes investors less willing to invest in important innovations.
So, can we put to rest this myth that the major funders of innovation require patents?