BlueIron can arrange financing for your company by using your patents as collateral for a loan.
We are able to provide financing for issued patents as well as pending applications.
What’s the catch? The patents need to be high quality and the business opportunity needs to be excellent.
High quality patents are required when we use patents as collateral. But what does that mean?
When we look at patents to determine their quality, we look at a patent in stages. This includes a first impression, initial claims analysis, and a detailed evaluation.
On an initial impression, a quality patent will have several defining characteristics, and it begins with the first page of the patent. The title, abstract, and first figure of the patent give an initial sense of the quality of the patent. Text that is full of legalese and tortuous phrases are the first hint that the patent will be poorly written. The figure or illustration on the front page of the patent should show the invention and put it into context.
One very important element on the first page is the list of references cited. A well-researched, well-examined patent will have several patents cited, along with non-patent literature. In the list of references, the references with a star are ones that the examiner found, while all the others are references that the applicant found. A comprehensive list of references from the applicant shows that the applicant did a patent search.
The reason why the references are so important is that we want the examiner to have considered all the relevant prior art, and the more references that are cited, the harder it is for someone to challenge the patent after it has issued.
The claims can show a lot about the patent just by scanning them. In general, the shorter the claims, the better – but within reason. We want the claims to be broad, but over-broad claims can be susceptible to being overturned. Very long claims are often too narrow to be effective, and we want an appropriate balance.
What is an appropriate balance? It depends on the invention. For some technologies, the smallest invention may make a big difference, while early, keystone inventions may be broad and still withstand challenges.
A loan against patents are a business loan after all. The biggest concern is that the borrower has the ability to repay the loan, so there is a big focus on the use of funds and the business opportunity.
Good business opportunities are ones where the money being loaned will help the company make even more money. Most investors evaluate a business using the simple metrics of a cost to acquire a customer, the cost of goods sold, and the lifetime value of the customer. A good business is one where an expense of $1 to acquire a customer yields more than $1 in lifetime value after the cost of goods sold. In this case, an investment in the company will produce positive revenue, which ensures that the loan will get repaid.
In some cases, patent loans can be used to bridge a company from one round of funding to another. For example, an interest-only loan may be made which is intended to be repaid when the next rounding of funding occurs. This will keep the company alive, give it some working capital, and put it in a better position for the next round.
How Does The Process Work?
A typical deal will progress through several phases. We are happy to do an initial evaluation at no charge, where we look at your patent portfolio and can give you some immediate feedback. If the feedback is positive, we begin the underwriting process. In many cases, our insurance carrier will require a fee for underwriting.
Upon successful completion of underwriting, we have an insurance policy that will guarantee a bank against default. We then can obtain a loan from a commercial bank.
How Long Does It Take?
A typical deal may take between 4-6 weeks to complete, from initial evaluation to closing a loan and issuing a check.
Contact Russ Krajec at email@example.com or call us at 970.776.4355.