Appendix C – The BlueIron Investment Model
This is a reproduction of Investing in Patents by Russ Krajec. For the complete book, get it on Amazon.
This book documents many problems of the patent ecosystem including the misalignment of interests, lack of professional patent expertise for startups, the need to get patents fast, and the high cost of doing patents well.
BlueIron IP is solves these problems by financing the patents.
It is out of reach for a startup company to get high caliber, well researched, and well written patents. These patent applications require an enormous investment in time, money, and expertise – mostly by the patent professionals who curate the inventions, write the patents, and nurture them through the examination process.
Most startups resort to some terrible strategies, such as filing provisional applications and other cost-avoiding strategies that virtually guarantee poor results.
By financing them, BlueIron treats the invention as collateral and removes the cost barriers to getting good patents. Because we only have the patents as collateral, our business depends completely on how strong those assets are.
BlueIron IP aligns our interests with the startup company in ways a conventional patent attorney can never do.
BlueIron’s investment in a patent only works when the client is successful, and vice versa. If the company is not successful, BlueIron’s collateral is a bunch of patents for products that never made it to the market, and those assets are very hard to sell. If the company is successful, the patents have real value – far more value than the cost of the financing.
Startup companies do not have the advantage that big companies do – professional, in-house patent counsel with sophisticated strategies for creating and managing their patent portfolios. BlueIron fills that void.
While the financing justifies the relationship on the numbers alone, the fact that we put in the due diligence beforehand and only write patents that have direct business value, makes the BlueIron relationship incredibly powerful.
BlueIron invests in patents.
BlueIron approaches patents with an unabashedly detached and unemotional view. This is an investment, and we treat it as such. Our risk profile depends on avoiding the bad investments and cultivating the good ones in the same manner as an angel or venture capital investor.
An angel or venture capital investor wants to see at least a 50% per year growth in their investment. Investment-grade patents are those that generate the same level of return on investment.
How the investment model works.
BlueIron creates a new framework where both parties have the same goal: protect and grow the business.
The best part of the BlueIron model is that by eliminating the problems with the attorney/client relationship, we put in place a financial structure that reduces risk for the startup and makes their capital go further.
BlueIron combines a conventional patent holding company/licensing structure with a commercial “lease-back” financing model. The startup receives an exclusive license to the assets, which is transferrable to acquirers and which also includes a buyout provision.
BlueIron’s sole focus is to build investment-grade patents that have commercial value. By treating patents as “collateral,” BlueIron’s business model rises or falls based on how strong the patents are – and how successful the startup is.
The BlueIron financing structure puts BlueIron in the business of doing what it does best: building investment-grade patent portfolios. At the same time, the startup has more capital to deploy in the business.
BlueIron’s thorough due diligence prior to financing has won the respect of angel investors, who value the tough stance on avoiding useless patents, as well as the guidance given to each startup for curating meaningful patent portfolios.
Investors appreciate the candid and thoughtful due diligence for their investment deals as well as the comfort that BlueIron is doing everything possible to build solid, investment-grade patent assets for their portfolio companies. As an added bonus, their portfolio companies are able to stretch their cash further because they are not paying patent attorneys.