Always ask about the business model – SFLC Blog – Software Freedom Law Center

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The truth is that the patents aren’t a moat around the startup’s product, but around the VC’s investment. As every VC knows, a huge proportion of startups fail—as many as 90%. Given this high failure rate, VCs don’t see startups as investments in themselves, but as pieces of an investment portfolio; they’ve placed bets across the board, expecting most of them to lose.

Patents are VCs’ hedge against these inevitable losses. When a startup with patents fails, its patents become the property of its funders, compensation for the unrecouped startup capital. The funders have little use for the patents once the startup that produced them is out of the picture, so the patents become commodities to be sold to the highest bidder. Increasingly, the highest bidders are patent trolls, and the failed startup has inadvertently made the environment for software innovation more radioactive by exactly one (or two or seven) patents.

Source: Always ask about the business model – SFLC Blog – Software Freedom Law Center