Patently Strategic Podcast: What Investors Want in Patents, with Sridhar Iyengar

Sep 21, 2023

Patents have many audiences, and folks from our industry tend to focus most on the patent office and the courts. But for inventors, they often care more, initially anyway, about investors. And investors are going to look at patents in very different ways than an examiner or a judge would. That's the perspective we’re hoping to offer in this episode of Patently Strategic. What do investors want to see in patents? What do patents tell a potential investor about a founder? And what do investors wish inventors knew before coming to them?

As part of a new series we’re starting, we’ll be answering these questions with the help of accomplished investors, who will be sharing their firsthand accounts and unique perspectives around the interplay between patents and investing. Our first guest is Dr. Sridhar Iyengar, angel investor and serial entrepreneur in the medical devices and wearables space. Sridhar has seen this important topic from all of the relevant angles – inventor, founder, and investor, so we can't think of a better person to kick off this series!

Sridhar Iyengar is the CEO of Elemental Machines, makers of smart IoT products for the life sciences industry. Sridhar has a long and successful history as a serial entrepreneur in the world of connected medical devices and wearables. His first company AgaMatrix, a blood glucose monitoring company, made the world's first ever medical device to directly connect to the iPhone. As an inventor, Sridhar holds over 150 U.S. and international patents.

Sridhar has seen the value – or lack of value – for patents across three industries: medical devices, consumer products, and enterprise B2B SaaS. The value in obtaining a patent depends on the market, what the competition is like, and what type of moat you’re trying to build. For example, if the moat is around scientific invention and discovery, patents are almost a must have. This sort of innovation is hard to keep as trade secrets and it will be difficult to get investors on board, who would otherwise be skittish in the absence of a patent portfolio.

In these types of fields, patents can also have tremendous strategic value. Sridhar shares a great story about how his patent portfolio at AgaMatrix made the difference in landing a large deal with Sanofi because of the confidence it gave Sanofi's diligence team on the potential for cross-licensing capabilities once the tech went from flying under the radar as a small startup to getting attention from the other big pharma players competing with Sanofi.

Rule of thumb: Can you spot an infringer, or can someone easily reverse engineer the product or object you’re selling? If the answer to either is no, Sridhar would steer away from patents because they’re unnecessarily telling the world what you’re doing behind closed doors.

In other cases, they might not provide strategic or operational value. His most successful investment, PillPack (bought by Amazon for $1 billion), had zero IP and instead benefited from ease of use, packaging, and a great moat of already having access to an established mail order pharma business with infrastructure, paperwork, and permits in place.

North of 90% of the deep science and tech companies that have piqued his interest from an investment standpoint had filed for patent protection prior to pitching. Beyond being part of a startup's currency and a great communication tool about a founder's core values (more on that later), patent applications are almost essential for inventors looking to give themselves protection around disclosure given that most investors (Sridhar included) won't sign NDAs due to the handcuffs and liabilities they present to potential for future deals. Establishing patent pendency with a provisional application is a great lower-cost, lower-fidelity application that allows you to secure the earliest possible priority date to the invention and more protection when disclosing your idea with investors.

Sridhar says that while it's difficult to put a dollar value on a patent, especially in the pre-seed and seed rounds when it's unlikely that the patent has even been granted yet, patents can tell you a lot about a startup's core values and strategy. Patents (and conversations surrounding them) provide an invaluable communication tool for seeing a founder's thought process around intellectual property – how founders are thinking about protecting their IP, the value they’re creating, and if they are thinking strategically. Patents are a material manifestation of values and not just what a particular investor may want to hear.

One big piece of advice that Sridhar provides for inventors in this episode is making sure they understand the IP landscape. Everyone has a competitive landscape slide in their deck, but he never sees IP landscape overviews for things like freedom-to-operate, who else is in the space, and what all you’d have to navigate around. He can read a patent and say that it logically makes sense, but how does it compare to the other 1,000 patents in this field? If there was one thing he’d like to see more entrepreneurs do, it would be to tell him about the innovation in the context of the broader IP landscape.

In addition to the topics above, Dr. Ashley Sloat and I also discuss the following with Sridhar:

For a deeper understanding of some of the patenting topics mentioned in this conversation, see the following past episodes and articles:

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