Venture capital and intellectual property: Insights from the UK market

The UK’s venture capital (VC) landscape is undergoing a transformative shift, as recent trends and investment strategies highlight the critical role of intellectual property (IP) in securing funding and driving growth. With a focus on innovation-heavy sectors like climate tech, artificial intelligence (AI), and biotech, IP has become a cornerstone of due diligence and a decisive factor in investment decisions.

Last year Chambers & Partners published a practice guide on venture capital. This article focuses on parts of the guide relevant to IP, exploring how the UK’s VC market trends and investment practices interact with IP and offering insights for founders, investors, and innovators.

Key market trends driving IP-centric investments

From “growth at all costs” to profitability and sustainability

The UK VC market, much like its US counterpart, has shifted from a “growth at all costs” mentality to prioritising robust business fundamentals. Investors are prioritising businesses with efficient cost structures and a well-defined strategy for achieving financial success, resulting in a clear path to profitability. For IP-heavy sectors, this means founders must present not only cutting-edge innovations but also scalable, defensible IP portfolios that align with market demands. The focus on later-stage funding rounds underscores this trend. Investors are gravitating toward mature companies with well-developed IP strategies that can withstand market scrutiny and competition. This change is particularly relevant in fields like AI and biotech, where proprietary technologies and IP protections are vital to ensuring sustainable growth and investor confidence.

Climate tech and AI lead the charge

Climate tech and AI have emerged as dominant sectors, collectively attracting a significant portion of UK VC investment. These fields rely heavily on IP, from patents for novel renewable energy solutions to proprietary algorithms for AI-driven applications. The ability to secure and protect IP assets is a key determinant of a company’s success in attracting funding.

Biotech continues to be a standout sector, buoyed by the UK’s robust university spin-outs in the life-sciences sector. With a substantial lead in European biotech investments, UK ventures – particularly those leveraging genomics and AI – are capitalising on cutting-edge technology to secure equity financing and dominate clinical-stage innovation.

The role of IP in due diligence and investment processes

Intellectual property: a due diligence priority

IP is a central pillar of due diligence in VC investments, especially for early-stage and innovation-driven companies. Investors assess the venture’s IP position to ensure its innovations are well-protected and legally sound. For life sciences and technology startups, which derive significant value from intangible assets, thorough IP due diligence is non-negotiable. Key areas of focus include:

• Patent strength and scope: Ensuring patents cover core innovations and provide broad protection against competitors.
• Freedom to operate: Verifying that the company’s products or services do not infringe existing patents.
• Ownership clarity: Confirming that IP rights are clearly assigned and free from disputes, particularly for university spin-outs or companies with external collaborators.
• Regulatory compliance: For sectors like biotech, ensuring that the company meets industry-specific regulatory standards linked to its IP.

Transparency as a confidence builder

Transparency and open communication are key to successful fundraising campaigns. Companies that produce detailed documents to investors outlining their IP positions – including potential risks and mitigation strategies – signal transparency and preparedness. Such documents to investors not only foster investor trust but also pre-empt potential roadblocks that could arise during the investment process.

Insights for innovators and investors

The UK’s evolving VC market provides critical lessons for stakeholders at the intersection of innovation and investment:

• For founders: Building a robust IP portfolio is not just about securing patents but also about demonstrating how these assets underpin long-term growth and competitive advantage. Early-stage companies should prioritise clarity in IP ownership and readiness for due diligence.
• For investors: The emphasis on IP highlights the need for specialised expertise in assessing intangible assets. Engaging IP professionals during due diligence can mitigate risks and enhance investment decisions.

Conclusion

The UK’s venture capital market demonstrates that IP is more than a protective measure; it is a strategic asset that shapes investment decisions and drives value creation. As the market continues to prioritise sustainability, profitability, and innovation, the role of IP will only grow. Founders and investors alike must adapt to this IP-centric landscape, ensuring that their strategies align with market demands and future opportunities.

GJE’s patent attorneys have a strong track record of helping early-stage technology-based companies prepare to secure VC funding. We also regularly help VCs carry out due diligence prior to offering investment. To find out how we may be able to assist, please contact gje@gje.com.