Building for the world: Understanding the role of IP for startups

For the longest time, I have been a proponent of an ‘execution-led’ rather than an ‘IP-led’ strategy as the key pre-requisite for a startup’s success. I remember writing another article a few years ago titled ‘It’s about IT, not IP’, implying that for a startup, it’s all about the execution. While execution is clearly “necessary” for success, one can make the argument that in many cases, execution alone may not be “sufficient”.

Let’s dive a bit deeper into this topic. Recently, I had the opportunity to sit down with a dear friend, an esteemed member of the Iron Pillar Network, and one of the authorities on intellectual property – Dr Talal Shamoon, CEO of Intertrust.

I have been investing in Indian technology companies for almost 15 years. I have seen the overall venture ecosystem evolve significantly, and the creation of several unicorns this year alone is a testimonial to the aspiration and execution capability of Indian tech entrepreneurs. However, I realised that IP has played a meaningful role along with the execution capability of successful entrepreneurs, especially for those who are looking to address global markets.

Within Iron Pillar’s own portfolio, there are several bits of differentiated technologies and approaches that have played a critical role in the success and scale of these companies. Uniphore has multiple patents around speech recognition and analytics; SEDEMAC around automotive hardware and software; Servify around remote mobile device management; FreshToHome around its auction platform and predictive analytics; Vyome around its patented antibiotics and anti-fungal product portfolio, etc. So, while execution, scale and numbers garners investors’ attention, the underlying IP is often the enabler of both the scale and velocity of growth in many cases.

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Intellectual property can and often does take various forms – patents, copyrights, trademarks etc. One of the approaches that entrepreneurs tend to take is one of “trade secrets”. The issue with trade secrets, as Dr Talal pointed out during our conversation, is that as and when the CTO or Chief Architect within a company walks out the door, the trade secret does as well. And enforcement can become a challenge, even though there are ‘confidentiality’ clauses in most employment agreements. The Waymo-Uber case was a classic example of trade secret infringement.

Startups often talk about building a ‘moat’ leveraging several approaches – capital, world-class team, first-mover advantage, scale, etc. IP is often not an aspect that a company emphasises, at least when most Indian tech startups pitch their ideas. But that is changing. The democratisation of technology through trends such as open-source software and cloud offerings from the likes of Amazon, Microsoft, and Google, are making it easier to launch technology startups. At the same time, incumbents are also looking to quash competition from startups by copying technologies, or product features and functionality. Hence, IP continues to become more crucial.

Sometimes, a protected innovation can be a massive catalyst for business. Amazon has leveraged its “single-click transaction” patent to create a competitive barrier, remove friction and thereby creating a habitual buying behaviour and achieving a gargantuan scale. There are many other examples of deeper technology IP from the likes of Intel, Microsoft, Google, Qualcomm and Nvidia – companies that are built on the power of their underlying IP.

IP can be both offensive and defensive. It can be a mechanism for generating revenue through licensing, for example. It can, of course, be a deterrent for competition and a way for a company to own a particular domain and defend its turf as and when necessary. An IP-centric approach can be incredibly valuable, especially in winner-take-all or winner-take-most markets.

Increasingly, as the world gets more global and competitive, it is becoming imperative that startups think about their sustainable differentiation (ie IP) very strategically, and at the onset of starting their companies. As Talal mentions, “there is an IP arms race” with countries like China taking the lead, especially in areas such as AI. India and even the US to a large degree are playing catch up. In a country like India, it will be innovation and technology/IP development from the ground up (ie at the startup level) that will help bridge the gap, and help Indian startups compete globally. 

The bottom line is that good execution is necessary for a startup’s success. There is a saying that “B technology and A team almost always beats an A technology and B team”. But IP can lead to an “A technology and A team” outcome, increasing the odds of success for a startup. And in the startup world, where chances of success are slim, having a tight intellectual property strategy could lead to a make or break the outcome.