What do patents have to do with finance? At first glance, patents and finance may seem like two entirely separate worlds with little in common. However, a deeper look reveals a strong connection between them, rooted in their shared focus on the intangible aspects of value.
On one hand, patents embody intangible value through technical know-how—often mistakenly considered relevant only to technology experts and inventors.
On the other hand, finance deals with the intangible nature of the exchange value of goods and services.
In this three-part series on finance, we will explore the various intersections between financial credit, investment strategies, and patents. This first article focuses on the role of intellectual property in due diligence and the importance of patents in supporting financial institutions and banks in their decision-making processes.
What Is Due Diligence?
Due diligence is an investigative process carried out to assess the value and conditions (economic, strategic, and technological) of a company before making a strategic decision, such as an acquisition, merger, or investment. The term literally means “due diligence,” referring to the careful assessment necessary to make well-informed decisions.
This process consists of several stages, including a review of financial, legal, commercial, and operational data. It involves analyzing balance sheets, intellectual property (trademarks and patents), tax risks, and market dynamics to identify opportunities and risks, ultimately confirming or reassessing the perceived value of a company.
When Finance Evaluates a Company’s Technological Capabilities
Due diligence is crucial not only to protect investors or buyers but also to build a solid post-acquisition strategy, minimizing unexpected risks.
Venture capital and private equity funds, as well as investors in general, often assess the technological know-how of target companies to thoroughly evaluate an investment opportunity, its risks, and its potential returns. Companies seeking investment know this well and strive to present themselves in the best possible light during this evaluation phase.
To attract investors, companies frequently demonstrate the strength and economic potential of their assets, including intellectual property rights and proprietary technologies. This includes evaluating whether an invention is commercially viable, whether it can enter the market without infringing on others’ intellectual property, and whether alternative technical solutions exist that could compete with the innovation in question.
These analyses—patent assessments and competitive intelligence—help both investors and companies (for opposing reasons) understand the technological landscape, prior art, feasibility, and competitive threats.
How an Investor Can Assess the Value of a Patent: Practical Cases
Let’s consider a real-life case, with the company’s name omitted for confidentiality reasons.
An investment firm operating in Italy through multiple closed-end funds was interested in a small-to-medium-sized enterprise (SME) in the food industry. The SME’s primary asset was a European patent, whose true potential had to be understood before proceeding with the investment.
Erre Quadro supported the due diligence process by mapping state-of-the-art technological solutions, providing the client with an overview of existing alternative technologies, and classifying them by their level of “threat.” This helped identify direct and indirect competitors that could pose obstacles to the SME, facilitating the investment firm’s decision-making process.
Similarly, another investor needed to evaluate the potential risks and benefits of investing in a deep-tech startup specializing in machine learning algorithms for video quality enhancement. The client’s goal was to determine the startup’s freedom to produce and sell its product without infringing on existing intellectual property rights and to assess its patentability.
Through an IP assessment analysis (including patent claims), relevant prior art was identified, overlapping technologies were highlighted, and key patent documents—including non-threatening ones—were examined. This allowed the startup to file its own patent while also providing a clear understanding of the opportunities and risks associated with it.
Discover our AI software for the automatic extraction of information from technical documents.
How Companies Seeking Investment Can Enhance Their Attractiveness
Patent-based due diligence is not only useful for investors; it can also help companies improve their positioning and increase their pre-money valuation.
A recent case involved a company specializing in biomedical robotics that owned patents related to sensor systems and signal analysis for robot positioning in a given environment (specific details omitted for confidentiality).
The company aimed to demonstrate to potential investors the full value of its developed technologies by offering a detailed analysis of possible applications beyond the biomedical field. The business plan needed to include a comprehensive list of all industrial sectors where the patented system could be applied.
Erre Quadro’s technological landscaping analysis helped identify all relevant technological domains and industries where similar technologies were being explored or where the company’s patented solution addressed key technical challenges.
This analysis revealed over ten distinct application fields—some far removed from the biomedical sector. For example, the gaming industry could leverage the biomedical technology to improve spatial positioning in gaming devices, enhancing entertainment potential.
This type of analysis, relying on insights from over 500,000 relevant patents, demonstrated how the patent system can serve as a powerful tool for both strategic and financial analysis.
Our conclusions
In this first article on the intersection of patents and financial institutions, we have explored how patent analysis can support due diligence activities. The key takeaway is that patents are increasingly becoming strategic assets that differentiate companies seeking investors. At the same time, they provide investors with valuable insights to make more informed decisions. In short, financial strategy and innovation go hand in hand.
Request a demo of our AI tools.
