We asked Jonathan Tudor, Investment Partner at Clean Growth Fund, to explain how venture capitalists view intellectual property (IP) in the context of greentech and how startups can maximise their investability.
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Jonathan Tudor is an investment partner at Clean Growth Fund, a VC investment fund backing UK companies commercialising technologies able to take more than 100,000 tonnes of carbon out of the atmosphere per year.
He has more than 20 years of venture investment experience across multiple sectors, geographies and markets. He has led investment teams at BP Ventures and more recently was technology strategy director at Centrica.
Hi Jonathan! Who are Clean Growth Fund?
We are a VC fund that invests at the very early stage in B2B, rather than B2C, startups. We focus on IP-rich businesses with proprietary technology that tackle the climate crisis. Our portfolio includes Arda Biomaterials, which transforms waste into a leather-alternative; HutanBio, which makes a biofuel replacement for diesel and aviation fuel; and tepeo, a zero-emissions boiler powered by electricity.
IP is important to us. We need to know that the companies into which we put our capital are able to protect against copycats and infringers. Otherwise we may not be able to secure a return, so it is vital that the founders we invest in learn to master it.
How do VCs help greentech founders with their IP?
At Clean Growth Fund we recycle a hefty chunk of our management fee into giving our portfolio companies access to various experts, one of which is a patent attorney. We pay for their time. The attorney won’t draft a patent, but they will come in and audit and give advice around strategy. They will suggest where filing a patent is worthwhile and where trade secrets are preferable, and talk through concepts such as monitoring rivals. The conversation is so useful to greentech founders. The attorney will pose hypotheticals, such as ‘how would the startup react if a competitor infringed?’.
The consultation might be as little as two or three days, or as much as six weeks. The interaction can help create a strategy that can protect the IP of a startup for the next four to five years, which is crucial for maintaining a competitive edge in the greentech sector.
What mistakes do founders of greentech startups make around IP?
One common mistake is the assumption that holding multiple patents is always the best strategy. In reality, greentech startups may be better off using trade secrets to protect some innovations, especially when patents might reveal too much to competitors. A commercially minded patent attorney can guide startups on the most effective approach.
Another error is how startups count their patents. They’ll tell VCs: ‘Oh, we have ten patents.’ We ask: ‘Is that one patent in ten countries, or ten different patents? If you have a single invention patented in a variety of countries, we call that a ‘patent family’. So to keep things clear, talk to VCs about patent families rather than just stating raw numbers; it shows you understand your IP and what it’s doing for you, creating confidence.
Cost is another critical factor. Filing and maintaining patents, particularly in multiple jurisdictions, can be expensive – a significant consideration for pre-revenue greentech startups. It’s essential to assess whether each patent delivers value, especially when resources are limited. Again, having a carefully curated, streamlined IP portfolio is essential to control these costs and shows investors that you understand the value of IP and how to harness it in a way that works for your business plan.
There is a lot of confusion around ‘Freedom to Operate’. What does it mean?
Freedom to Operate, or FTO, is a minefield. Some entrepreneurs believe that since they have a patent this gives them the right to make their product without reference to anyone else.
This is not necessarily so. Having your own patent doesn’t really factor into your FTO position. For example, if you’ve patented a new type of solar panel, you still need to ensure that no one else holds patents on the underlying technologies, such as the photovoltaic materials or methods used in the panel’s production.
Without FTO, you risk infringing existing patents, which could lead to costly legal disputes. FTO is a completely separate project to protecting your own inventions. Of course, your own patent might help in commercial negotiations with other parties, so it is important and could have value here too.
Greentech startups need to engage a patent attorney to do this kind of due diligence in the same way they do for drafting applications. The attorney will examine the market and patents to see whether there is anything that might be infringed.
What role do non-disclosure agreements have in protecting IP in greentech?
Non-disclosure agreements (NDAs) can be misunderstood. An NDA is useful, but it is not carte blanche to share your ideas with the signatory. Best practice is to say as little as you can, maybe just enough to give an indication of how your product works.
Taking legal advice on the efficacy of NDAs is critical for greentech startups when the stakes are high and the innovations are often groundbreaking. How should you behave when one is in place? How do you mark a document as confidential? What does that mean? You may be better off keeping your IP as trade secrets, even from those who signed an NDA, to avoid valuable secrets being leaked.
Imagine you’re talking to a first-time greentech founder. What advice can you give them about being investible by a VC?
My advice to greentech founders is to familiarise yourself with the law around IP. You need to be comfortable discussing IP, just as you need to get to grips with accounting concepts so you can read a balance sheet. It can take as little as a few hours with a patent attorney or commercial technology specialist to help you get started.
Do all startups need patents? No not necessarily – many can derive value from them, but it’s not necessary for all type of business. For example, if you are direct to consumer, and your business is an app or product, then you can just build it and move faster than your rivals. For B2B greentech startups, it is rarer that patents are not needed, but may still work in certain circumstances.
For all types of technology startup, a strong IP strategy can increase your chances of securing investment from VCs, especially in the greentech sector, where protecting innovation is key to long-term success. It is worth getting it right.
Thank you, Jonathan!
My pleasure!
Making strategic decisions about IP
Eleanor Maciver, Partner, Patent Attorney and Sustainability Champion at Mewburn Ellis, comments:
"Jonathan’s interview is the first of a series of articles we plan to publish with tips from Greentech VCs around IP and what they’re looking for when investing. We think these will be invaluable to Greentech founders. By making the strategic decisions about their IP and showing they have a good understanding of its value and purpose (and even when IP is not valuable as Jonathan says), Greentech founders can put themselves in the best position to attract and maximise their funding."
Written by Charles Orton-Jones
