There's a strong reluctance in venture capital to fund companies that are number two or three in a category dominated by a "kingmaker"—a startup already backed by a top-tier firm. This creates a powerful, self-fulfilling fundraising moat for the perceived leader, making it unpopular to back competitors.

Strava's lawsuit against Garmin, filed as it explores an IPO, is less about a patent win and more about strategic defense. Garmin shifted from a partner to a competitor with its Garmin Connect app, and the lawsuit aims to disrupt its momentum and signal strength to investors.

While many founders fear competitors, Michael Dubin views them as beneficial. He argues that rivals forced Dollar Shave Club to sharpen its brand identity and focus on its unique strengths. Competition validates the market opportunity and pushes the incumbent to work harder and be more specific about its value.

The value of a patent extends beyond simple protection. It allows a company to escape commoditization and command higher prices. For startups, patents are tangible assets that justify higher valuations. In legal disputes, they provide crucial leverage for negotiating settlements with competitors.

Opponents with deep pockets can initiate lawsuits not necessarily to win, but to drain a target's financial resources and create immense stress. The astronomical cost and duration of the legal battle serve as the true penalty, forcing many to fold regardless of their case's merit.

Despite the potential for AI to create more efficient legal services, new tech-first law firms face significant hurdles. The established reputation of a major law firm ("the name on the letterhead") sends a powerful signal in litigation. Furthermore, incumbent firms carry malpractice insurance, meaning they assume liability for mistakes—a crucial function AI startups cannot easily replicate.

Holding a patent provides no inherent protection. Its value is only realized through active, and expensive, legal defense against infringers. Therefore, a startup's focus should be on building a profitable business first to generate the capital needed to enforce its IP.

TiVo focused its resources on legally defending its DVR patent, its "moat." This strategic fixation caused it to completely miss the rise of streaming, a disruption that made its core technology irrelevant. Protecting an advantage can create a dangerous blind spot to bigger, external threats.

Ken Griffin warns startups against direct, head-on competition with industry giants, stating, "you're going to lose." To succeed, you must find an asymmetrical advantage—operating "under the radar" or solving niche problems incumbents ignore. Citadel initially did this by hiring unconventional quantitative talent.