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To Be Financed or Not … - The Role of Patents for Venture Capital Financing

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  • Haeussler, Carolin
  • Harhoff, Dietmar
  • Mueller, Elisabeth

Abstract

This paper investigates how patent applications and grants held by new ventures improve their ability to attract venture capital (VC) financing. We argue that investors are faced with considerable uncer-tainty and therefore rely on patents as signals when trying to assess the prospects of potential portfolio companies. For a sample of VC-seeking German and British biotechnology companies we have identified all patents filed at the European Patent Office (EPO). Applying hazard rate analysis, we find that in the presence of patent applications, VC financing occurs earlier. Our results also show that VCs pay attention to patent quality, financing those ventures faster which later turn out to have high-quality patents. Patent oppositions increase the likelihood of receiving VC, but ultimate grant decisions do not spur VC financing, presumably because they are anticipated. Our empirical results and interviews with VCs suggest that the process of patenting generates signals which help to overcome the liabilities of newness faced by new ventures.

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Bibliographic Info

Paper provided by University of Munich, Munich School of Management in its series Discussion Papers in Business Administration with number 8970.

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Date of creation: 20 Jan 2009
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Handle: RePEc:lmu:msmdpa:8970

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Keywords: patents; venture capital; intellectual property rights; R&D; biotechnology;

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Cited by:
  1. Hottenrott H. & Czarnitzki D. & Hall B.H., 2014. "Patents as quality signals? The implications for financing constraints on R&D," MERIT Working Papers 013, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  2. Mueller, Elisabeth & Cockburn, Iain M. & MacGarvie, Megan, 2013. "Access to intellectual property for innovation: Evidence on problems and coping strategies from German firms," Research Policy, Elsevier, vol. 42(2), pages 529-541.
  3. Bronwyn H. Hall, 2010. "The Financing of Innovative Firms," Review of Economics and Institutions, Università di Perugia, vol. 1(1).
  4. Bottazzi, Laura, 2009. "The role of venture capital in alleviating financial constraints of innovative firms," EIB Papers 9/2009, European Investment Bank, Economics Department.
  5. Bertoni, Fabio & Tykvová, Tereza, 2012. "Which form of venture capital is most supportive of innovation?," ZEW Discussion Papers 12-018, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Block, Joern H. & De Vries, Geertjan & Schumann, Jan H. & Sandner, Philipp, 2014. "Trademarks and venture capital valuation," Journal of Business Venturing, Elsevier, vol. 29(4), pages 525-542.
  7. Michael Peneder, 2010. "The Impact of Venture Capital on Innovation Behaviour and Firm Growth," WIFO Working Papers 363, WIFO.
  8. Meuleman, Miguel & De Maeseneire, Wouter, 2012. "Do R&D subsidies affect SMEs’ access to external financing?," Research Policy, Elsevier, vol. 41(3), pages 580-591.
  9. Arqué-Castells, Pere, 2012. "How venture capitalists spur invention in Spain: Evidence from patent trajectories," Research Policy, Elsevier, vol. 41(5), pages 897-912.
  10. Bertoni, Fabio & Tykvová, Tereza, 2013. "Which form of venture capital is most supportive of innovation? Evidence from European biotechnology companies," FZID Discussion Papers 69-2013, University of Hohenheim, Center for Research on Innovation and Services (FZID).
  11. Harhoff, Dietmar, 2009. "The role of patents and licenses in securing external finance for innovation," EIB Papers 11/2009, European Investment Bank, Economics Department.
  12. Darcy, Jacques & Krämer-Eis, Helmut & Guellec, Dominique & Debande, Olivier, 2009. "Financing technology transfer," EIB Papers 10/2009, European Investment Bank, Economics Department.
  13. Laursen, Keld & Salter, Ammon J., 2014. "The paradox of openness: Appropriability, external search and collaboration," Research Policy, Elsevier, vol. 43(5), pages 867-878.
  14. Hughes, A. & Mina, A., 2010. "The Impact of the Patent System on SMEs," ESRC Centre for Business Research - Working Papers wp411, ESRC Centre for Business Research.
  15. Stefano Comino & Clara Graziano, 2014. "How Many Patents Does it Take to Signal Innovation Quality?," CESifo Working Paper Series 4840, CESifo Group Munich.

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