As part of a series in which we ask leading venture capitalists to answer a question of fundamental importance to entrepreneurs, Agronomics Principal Laura Turner explains how VCs evaluate the value of intellectual property.
Forward: features are independent pieces written for Mewburn Ellis discussing and celebrating the best of innovation and exploration from the scientific and entrepreneurial worlds.
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Laura Turner is a Principal at Agronomics, a venture capital company focussed on Future Food technology, particularly cellular agriculture. She holds a MChem from the University of Oxford, and as part of her studies spent time at UC Berkeley, California, working on genetic modification of aldolase enzymes. Laura brings her technical background to the evaluation of investment opportunities for Agronomics. |
There is a misperception that it's possible for a VC to put a precise value on a scientific breakthrough for investment purposes. Regrettably, it's not that simple.
Even in the most R&D dependent fields there are many other factors at work. Evaluating the value of IP is a holistic process. IP is just one part. Understanding the true role of IP in creating an investable company is therefore vital for innovators.
The company I work for, Agronomics, is a leading investor in cellular agriculture. We made our first investment in 2019, and today we have around 50 companies in our portfolio, such as Meatable, which makes cultivated beef and pork; BlueNalu, famous for cell-cultured seafood in particular bluefin tuna; and the EVERY Company, which makes precision-fermented egg proteins. This is a young industry. Only one company in the world has so far achieved regulatory approval to sell cell-cultivated meat, fish or dairy products.
A sector like ours is devoted to scientific research. The companies we invest in are world-leaders in R&D. So why is it so hard to put a value on a patent?
Let's start with the defensibility of a patent. When a company wins a patent it may believe it can dominate a niche within its industry. Unfortunately, our sector shows patents may not be as secure as the holders assume. Perfect Day, for example, is a startup specialising in fermentive production of alternative dairy proteins and lipids. In 2019, Perfect Day secured a patent for producing two major whey proteins, β-lactoglobulin and lactalbumin, by fungal culture. The patent was challenged by New Zealand-based multinational Fonterra. In September 2022 the patent was declared invalid.
This is not a lone case. In December 2022, the European Patent Office revoked a patent held by Impossible Foods relating to the use of heme products in meat alternatives.
VCs are mindful of the possibility of a patent either being revoked or circumvented by a rival. When a process becomes known, it is feasible to side-step it. In a sector such as precision fermentation, companies are using recombinant engineering tools and techniques in use since insulin was first commercialised. There is a limited ability to find new steps. VCs will value IP fully aware of these potential challenges.
MEWBURN COMMENT
There are many factors which determine the ‘strength’ of a patent and therefore its enforceability and vulnerability to challenge. |
There's also the issue of scale. A new process may work in a lab. But is it plausible to scale to the mass market? A VC will want to see how IP translates to a commercially realisable product. Brilliant science alone is not enough.
MEWBURN COMMENT
Patents should complement a company’s strategy to achieve commercialisation of their technology. |
Intellectual property will also be evaluated alongside the strength of the management to commercialise it. VCs are vocal about the importance of the leadership team for securing investment. For example, Agronomics' investment in BlueNalu is down to a large degree to the experience and knowledge of the founder and CEO Lou Cooperhouse. He's spent 30 years in the food science industry. He understands the regulatory landscape. He knows how to scale a company, how to recruit and how to take products to market. The IP of BlueNalu is more valuable because of the exceptional calibre of the leadership team.
MEWBURN COMMENT
Even if you have a strong patent portfolio, it is important to remember that patent portfolios develop over time, and therefore must be well managed. |
The value of IP also depends on the sector. Agronomics, for example, will prefer to invest in the major protein categories, as those markets are huge. Premium value products such as bluefin tuna are particularly attractive. A breakthrough in a niche field will, naturally, command a lower valuation.
The maturity of the intellectual property is also important. A fresh patent by a startup in an emerging field will struggle to generate a high valuation. Whereas IP at a company which has made a lot of progress towards commercialisation is going to be more valuable. Typically, for a Series A fund-raiser there's no point running detailed financial analysis of the value of IP. By Series C the variables are more stable, and VCs will start to analyse the role of IP in a company's valuation.
A final factor in evaluating IP is the likelihood of a patent dispute. Defending a patent is expensive. In a sector such as food science there are a lot of players, and conflicts are common. For that reason, a lot of companies prefer to keep IP as trade secrets to stay out of court. They don't have the time or money to get involved in a dispute. This is something a VC will bear in mind when evaluating the value of IP.
In the end, intellectual property is critical for truly innovative companies to achieve their full potential. But VCs evaluate the worth of IP as part of a complex equation. The resourcefulness of the management team, the regulatory environment, the state of competitors, and likelihood of taking the innovation to market all play a role.
A breakthrough in the lab is a great start. But it’s just one part of a larger whole.
Building a robust portfolio
Adam Gregory, Mewburn Ellis Partner and Patent Attorney, comments:
"A company’s IP position can be integral to its growth and success. Laura’s comments help to demonstrate that the focus shouldn’t be on merely having patents, but rather on building a robust portfolio that’s properly aligned to the company’s commercial goals. Engaging the right counsel to devise an appropriate supporting IP strategy will help to maximise the value proposition to prospective investors."
