Fact of the Week: Approximately 70 Percent of the Patents Owned by Failed Tech Start-Ups are Eventually Purchased by Other Companies

June 11, 2018

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

ITIF estimates that only 41 percent of tech-based start-ups survive past their fifth year. But what happens to the patented innovations these tech start-ups own after the companies have shuttered? According to new economic research, most of these patents are eventually purchased by other companies. So it appears that many of these companies’ failures are due to factors other than the viability or value of their innovations.

Carlos Serrano and Rosemarie Ziedonis analyzed 1,766 patents issued to 285 tech-based start-ups that closed down between 1988 and 2008. They found that approximately 70 percent of these patents were eventually purchased by other companies, most often by firms in the same sector and within the first year of start-ups’ closing. Examining these trends at the sector level, 86 percent of patents in the semiconductor sector were purchased, 74 percent in the software sector, and 61 percent in the medical devices sector. This suggests that a large share of patents owned by failed tech start-ups are valuable and just need the right company to apply them to their maximum potential.