The importance of intangible assets for your startup
Intangible assets, including the know-how of your employees, key relationships with stakeholders, branding, intellectual property (IP) and trade secrets, are some of the core possessions of any business.
In this context, they are often the most valuable asset of a startup business, with some estimates placing over 85% of a company’s overall value in its intangible assets. However, these aspects are often overlooked and undervalued, which can have a significantly negative impact on a business’s future and potential for growth.
Why are intangible assets so valuable?
Intangible assets can be commercialised and used to generate various revenue streams and growth in a number of ways. They can create a strong competitive advantage and customer value, while also providing a way to differentiate your brand and offering. Some examples of how they can add value include:
- Technical innovations developed by the business and protected by a patent.
- Internal proprietary processes and trade secrets that can help differentiate a brand and business from its competitors.
- Branding: a company’s name, logo, slogan, and other individual characteristics are its foundation – these aspects are the identifiers that make a startup recognisable.
- Employees have specific knowledge of (often significant) information about a business’ products and/or services, future plans, innovations and how internal processes work. They bring their own skillsets to the workplace, which further boost the brand’s capabilities, which in turn improves the team’s value. In many startups, this know-how may be the reason an investor chooses to invest.
How to protect intangible assets
Leakage of an organisation’s intangible assets can have devastating consequences. Companies should therefore develop a coherent strategy for identification and protection of their intangible assets, and in many cases startup businesses may opt to protect theirs with patents. This helps to keep inventions and IP safe from unauthorised use by competitors. Patents offer legally sanctioned protection that bars anyone from using the protected technology or entering their technical domain without permission (e.g. a licence). This provides startups the time and space to work on their ideas or business plan without added pressure. Patents are filed with a startup’s long-term growth in mind, and while choosing to file a patent, a business should have all its target markets in mind and aim to protect their assets in these jurisdictions. Considering technological advancements are happening at an increasing pace, securing patents has become an important route in the protection of intangible assets.
Is protecting intangible assets expensive?
Many startups, which tend be restrained by their cashflow, choose not to protect their intangible assets out of fear of the high costs. While filing a patent can be costly, there are ways to work around this. Firstly, startups can discuss their IP protection strategy with their patent attorney, who will be able to advise on the best course of action. Understanding when costs occur during a patent application process can help to align the funding rounds with these upcoming expenses. Protecting your intangible assets as a trade secret may offer an alternative to patent protection, but the onus is on the business to maintain it as a trade secret. However, in practice, as most businesses grow, they will develop a portfolio comprising a mix of patents, trade marks, trade secrets and know-how, amongst others.
It is also important to remember that investing in the protection of your intangible assets will benefit your business in the long-term and reduce potentially much higher future costs. Protecting intangible assets is key to a startup’s differentiation in the market and sustainable value creation, so this should be addressed early on and considered throughout the lifetime of the business.
Regardless of what aspect of your business’ IP you would like to protect, Mathys & Squire can advise and assist you. Get in touch with a member of our team to discuss your strategy.
Written by: Anthony Coleman