Patenting companies have an easier path to success

In our series, The World of Patents, patent attorney Marco Coolen often highlights why protecting inventions is key to a company’s success.  Patents are more than legal safeguards—they are strategic, valuable assets that attract investors and drive innovation. A good example is Lightyear, which, thanks to its extensive patent portfolio, could survive and shift its focus from developing its own solar cars to solar roofs for vehicles. According to a recent analysis by the European Patent Office (EPO), startups with patents not only draw more funding but also deliver better returns for investors.

The EPO is the operative organ of the European Patent Organization and examines patent applications from all over Europe. It helps inventors obtain invention protection in up to 45 countries. In their paper Mapping investors for European innovators, they show how a higher technology involvement provides more chances to scale companies and have successful exits. 

In doing so, the report introduces a new metric, the Technology Investment Score (TIS). This value, varying from zero to one, measures the percentage of patenting companies–defined as a firm having at least one patent application–within an investor’s portfolio. The higher the TIS score, the higher the engagement with innovation-driven companies. Let’s dive into the numbers. 

Investors and technology involvement

The paper tracked over 6,100 investors active in Europe. Overall, the report shows that 88% of them have a positive TIS, being involved with innovation. Yet, most have a low TIS, with only 8% having a portfolio where over half of the companies hold patents. Throughout the report, the EPO compares with an 8,000 sample of investors in US companies. 

European and US investors by TIS - © EPO

Big public programs, like the European Innovation Council (EIC), Innovate UK, and Bpifrance, are active investors with high TIS. In addition, the report showcases the different shares of investor types in the analyzed European and American datasets. 

Public investors more involved with patenting companies 

The report points out that private actors, such as venture capital (VC) firms and other investment actors, do most funding. However, most of these transactions are into lower and moderate categories of the TIS. Conversely, most of the investments of public actors have a high TIS. 

The EPO explains this with the primary mission of these programs: supporting early-stage innovation. To this extent, the EIC, the European Investment Bank (EIB), and the European Institute of Innovation and Technology (EIT)  have above-average levels of involvement with patenting firms. 

Higher technology involvement, more success

Successful exits and scaling up are two indicators to track a startup's success. In the paper, the EPO analyzed to what extent a high TIS can lead to successful exits and scaling up. Exit rates increase with higher EU and US TIS levels, showing a link between technology investment involvement and startup success. 

Similarly, companies with higher TIS are more likely to scale. Nevertheless, the gap in this stat is more pronounced between Europe and the US, showing how high-TIS investors are more effective at helping companies that reach substantial growth. 

Successful exits and scale-ups by TIS category - © EPO

The Netherlands is among the innovation leaders 

The Netherlands is just outside the podium of EU markets for technology investments. According to EPO, startups received €21.7 billion between 2000 and 2023, ranking fifth by number of deals. The EIC, the SME program Eurostars, and the Brabant Development Agency (BOM) are the three most active investors in this period. Furthermore, the country is one of where the average TIS rate is one of the highest in Europe. 

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Deep financing gap 

As with nearly every comparison between the European and American innovation funding environment, the EPO paper exposes a financing gap. Particularly, the analysis points out how the gaps are wider for private high-TIS investors, who specialize in later-stage rounds and invest in high-tech sectors. 

As a result, the investors that can best support highly innovative companies provide less funding to European companies than to US ones. Such a shortcoming is marked in technology sectors with the most significant growth potential and later-stage funding rounds. 

Funding by TIS category - © EPO

Another figure to showcase this diversity is how, in the US, 98 out of 100 central actors in the investment networks are private entities specializing in later-stage rounds. In Europe, the top five investors by network centrality are major public entities. The top 100 investors also include 11 extra public actors. Moreover, 62% of European private investors focus on early-stage funding, while only 22% are active in late-stage. In a nutshell, there is limited capital to scale up European companies.

Startups’ competitiveness as a top priority 

Today, the European Commission will present the Competitiveness Compass, the bloc’s economic doctrine for five years. A leaked draft seen by POLITICO emphasizes deregulation and simplification as some of the doctrine's guiding principles. 

Last week, speaking to the Davos World Economic Forum, Commission president Ursula von der Leyen said that a 28th regime will be introduced as part of this compass. This will be a single set of rules for businesses to operate on a European scale. EU Inc. previously launched a petition to set up a new legal regime to foster startups’ growth. Will it help Europe improve its competitiveness? 

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