Financing patents through BlueIron is actually cheaper than paying as you go with a conventional patent attorney. This is because the cost of capital for startup companies is so high.
Pepperdine’s business school publishes the annual Private Capital Markets Report, which shows that the average cost of capital for Angel or VC funded companies in the seed or startup phase is about 37%. This is a reflection of the risk that these companies pose for investors, which makes sense. These companies need to have a very high return for the investors to accept their risk.
In a hypothetical example, let’s assume that a patent costs about $45,800. This is below the US average.
We typically operate in two regimes, one where the patents progress through their normal track at the patent office, which takes 3-4 years, and another regime where we expedite the patents. The expedited process usually results in a patent within 6-9 months, and we typically use this process when we intend to do loans of $2-5M based on the patents.
In any event, the Net Present Value for patent costs (assuming 37% cost of capital) for normal patent timeline (4 years):
Pay-as-you-go: NPV to startup: $31.9K
BlueIron: NPV to startup: $31.4K
For an expedited patent timeline (9 months):
Pay-as-you-go: NPV to startup: $40.6K
BlueIron: NPV to startup: $39.4K
The biggest reason why the BlueIron financing is cheaper is because you pay interest-only costs until the patent issues. BlueIron takes all the risk of whether or not the patent ever issues. With a conventional patent attorney, YOU TAKE THE RISK of the patent being any good AND you have to pay UP FRONT.
Because BlueIron allows you to pay AFTER the patent is issued, your company can use its precious cash resources to build prototypes, cover inventory costs, put efforts into marketing, and all the other uses for that cash. And because you pay AFTER the patent issues, the Net Present Value of your costs is much lower.
As with any BlueIron financing arrangement, you always have the option to buy out BlueIron at any time.
For more information, feel free to give us a call or schedule a Zoom call on our calendar.