Monetizing Intellectual Property: A Startup's Path to Revenue Generation

Startups miss creative monetization opportunities by underestimating the power of their brand’s intellectual property. IP (Intellectual property) refers to the legal rights over a brand’s image, products, or services. If you want to maximize the value of your intellectual property, focus your efforts on your core business, or generate much-needed capital, you first have to understand the potential utility behind your assets.

The right deal will depend on how developed your product or service is. Perhaps you or the licensee want to make provisions for improvements. You may have contacts, money, and time to fall back on, and could consider selling reproductions of your creation. You could also be hoping to profit from the commercial use of your IP. Brands looking to leverage their IP in any of the above ways can start by keeping these strategies in mind.

Licensing makes a brand’s name

Licensing is one of the first monetization options startups typically consider because it is fairly simple and low-risk. It allows the company to continually develop its IP with the potential of increasing its value, all while generating revenue. For example, a startup that develops a software application could license its tech to another company in return for a percentage of its sales or a fixed, agreed-upon fee. It’s also ideal for startups that want that flexibility to carve out unique terms in the agreement.

A variety of IP assets lend themselves to licensing – like a patent (invention), trademark (branding), or copyright (literature, art, music, and more) – and the options for receiving royalties are virtually limitless. Whether you plan to take a royalty percentage, fixed fee, or variable, negotiating a fair royalty rate starts with knowing the worth of your IP. Research what comparable startups have charged in similar deals and bring in a legal expert to value your IP through cost-based, market-based, or income-based approaches.

Consider the income you’d like to earn from licensing and royalty revenues, but remember that a range of factors will affect this rate at the end of the day – from the strength of your IP protection and market position to the licensee’s selling ability and the exclusivity of the agreement. In other words, weigh all your options, and be prepared to settle on one toward the end of the negotiations.

A business model is the heart of licensing

It goes without saying to protect your IP before entering into any negotiations. If the asset in question is an invention, it requires filing a patent application as soon as possible. It may be that your application is still pending when you find a potential licensee. If that’s the case, you can still share it with them, as long as you don’t give them access to the application’s claims. If your product is too abstract, it might not be patentable, and you’ll want to research opportunities that don’t involve licensing.

In addition to sponsorships and product placements, there are a number of licensing options that could be right for you, including collaborations with other brands (accompanied by PR and marketing campaigns). Successful examples include EVA Air’s co-branding with Hello Kitty on a series of Hello Kitty-themed flights, or numerous brands’ use of licensed characters from the Peanuts cartoon.

Regarding the types of agreements, you need to choose the license type that suits your business model best. In exclusivity agreements, only the licensee can use the IP asset or technology. A sole license is similar to an exclusive license, except that the licensor can continue using the IP. Non-exclusivity deals let the licensor negotiate relationships with additional, simultaneous licensees.

Another monetization opportunity is straight selling – consigning your rights wholly to another business. This method can serve startups that are in need of capital (as opposed to recurring revenue) or no longer have a use for their IP. This was the case with the AI startup bought out by vaccine manufacturer BioNTech to expedite drug research.

These factors will affect whether you opt for a licensing deal or something else entirely. Either way, remain mindful of the terms and conditions you’ll be agreeing to, and what both parties would get out of the deal to make it a win-win.

Going commercial sets a brand apart

Commercialization is another popular route for generating IP revenue. Here, the IP serves as the basis for a new service or product that a startup can sell directly to customers. You can leverage an existing brand to launch a product or service that incorporates the IP or use the IP to differentiate yourself from your competitors. You can also conduct a Freedom To Operate (FTO) analysis, which tells you whether you can monetize your IP asset through commercialization without infringing on another party's rights.

If you plan to deploy your IP for your own products or services, you’ll need resources for operations, but you’ll also have more control over how it’s put to use. For businesses trying to scale, the boot fits.

You may choose to spin off (transfer) part of the IP to your new operation and nurture opportunities under its umbrella. We see this all the time in pop culture – think Despicable Me to Minions, the Angry Birds game to the Angry Birds movie franchise, and various animated characters that have translated into toys, clothing, and theme parks. Spin-offs are a go-to for startups like research organizations that don’t have the capacity to fully commercialize their own IP and need to make space to focus on their core business.

Lately, this principle is being applied to digital assets like NFTs as well, as companies aim to offer augmented metaverse experiences and Web3 collectibles based on real-world counterparts with an already-thriving customer base. If the spin-off is created by a person outside the parent company, additional considerations include the transfer of the IP rights (through licensing or assignment), a due-diligence study of the IP, and non-disclosure agreements.

Franchising may also be ideal for a business owner who wants to recreate their concept in a new location with lower investment, and for a licensee who wants to enter into a new market with an established business model. Because the business is predicated on the IP, franchising has an inherent link to the IP asset. These deals come with a set of principles already in place for both parties, so you need to ensure conformity to the existing guidelines.

Positioning and protection are everything

Maximizing your brand’s IP monetization potential means positioning it in a way that communicates its true value to the market. Physical and digital assets linked to IPs are in demand, and Web3 presents myriad methods of monetizing IPs or tying them to users.

This as-yet-uncharted territory has seen its fair share of lawsuits around copyright and trademark violations. In fact, many Web3 projects haven’t been upfront about the rights they are transferring to holders, whether commercial or personal. Media licensing and royalty management organizations are exploring blockchain technology’s potential to relieve the industry from decades-old ownership issues.

In accordance with those principles, use your intellectual property rights to distinguish your brand from others in your industry. Don’t be afraid to flaunt a patent on a unique technology in your marketing materials, as well as in social media posts that tell customers about what your patent or brand name has to offer.

The opportunities are endless

Monetizing your startup's IP can be a complex endeavor, but it’s an exciting one, too. Staying mindful of the various legal and strategic considerations involved will always be part and parcel of the process. After carefully evaluating the options available to you, you’ll find there is no shortage of ways to monetize your IP creatively and effectively.

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