For many startup founders, securing an IP valuation from third-party experts seems like a logical step before raising capital. However, if you’re expecting this valuation to impress investors, you might be in for a surprise. Investors tend to discount IP valuations—no matter how meticulously prepared—and instead, focus on one critical factor: customer traction.
The Reality of IP Valuations in Investor Conversations
Founders often invest significant time and resources into obtaining a formal valuation of their IP. While this might seem essential for setting a baseline when seeking investment, the harsh reality is that investors care far less about the theoretical value of your IP and far more about whether your innovation has real-world demand.
From an investor’s perspective, IP alone is not enough to justify investment. The market is full of promising technologies that never see commercial success. What investors want to know is whether your product or innovation has a market fit—essentially, are there customers willing to pay for it?
Why Customer Traction is Key
The most important factor for investors is proof that your IP has commercial potential. This means having paying customers who validate the need and value of your product. Without this, even the most impressive IP valuation will fall flat.
Investors are wary of the risks associated with unproven IP. They are looking for evidence that someone in the market finds your innovation valuable enough to pay for it. If you can demonstrate this through customer traction, your fundraising efforts are much more likely to succeed.
Discounted Cash Flows: Another Investor Skepticism
Similar to IP valuations, discounted cash flow (DCF) projections often fail to sway investors unless they are grounded in reality. If your startup has not yet secured clients, DCF projections are seen as speculative at best. Investors need something concrete to base their investment decisions on, and hypothetical financial forecasts don’t cut it.
Conclusion: Focus on What Matters
If you’re in the early stages of your startup and preparing to raise capital, shift your focus from obtaining valuations to building customer traction. Demonstrating that there is a market for your product is the best way to attract investor interest. By prioritising real-world validation over theoretical valuations, you’ll be better positioned to secure the funding you need.
