The one thing about patents that every AI startup and SME needs to know

by Todd Bailey
Montreal, Quebec - April 21, 2023
IP without Jargon

AI founders sometimes tell me that they don’t think patents are important, or that patents are too expensive to include in their business planning.

My response? If you are serious about an exit someday, you are missing the whole point.

So, what is the point?

“Most startups that succeed, do it by getting bought – and most acquirers care about patents. Startup acquisitions are usually a build-vs-buy decision for the acquirer. “Should we buy this little startup or build our own?” And two things especially make them decide not to build their own: if you already have a large and rapidly growing customer base, and if you have a fairly solid patent application on critical parts of your solution.”

— Paul Graham, Founder, Y Combinator

Let that sink in.

A successful exit does not really depend on what you think about patents.

Beauty is in the eye of the beholder.

Paul has seen more than a few startups exit, and this is his pragmatic advice about what works. 

But it is also an act of supreme self-interest – to get the best possible exit deal for yourself, while handing over sustainable value to your buyer.


Acquirers want to improve their competitive advantage. More than just novel technology or solutions, these buyers are looking for an edge. A well-planned patent provides that edge. Especially in AI, because so many AI founders get this wrong.

But patenting is time-sensitive. This is not something the acquirer can do later! Your idea cannot be patented:

– after someone else patents it, or

– more than a year after you first publicized it or used it in your business.

Only you have the opportunity to add this kind of value – this edge – to your business.

A well-planned patent also provides you with more leverage in negotiating the acquisition terms and price, because you have something the acquirer really wants. Solid startups with well-planned patents are rare.

But no patent is a path to success by itself – that’s not my point. However, if your business is growing and seeing success, a well-planned patent is like icing on the cake.

And who doesn’t like icing?

“The real role of patents, for most startups, is as an element of the mating dance with acquirers.”

— Paul Graham, Founder, Y Combinator

You can be a cake – or a cake with icing.

The choice is yours.


Want to know more? Scale AI’s IP WHY platform has lots more.
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