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Patents as Signals for Startup Financing

  • Annamaria Conti
  • Jerry Thursby
  • Marie C. Thursby

We examine the role of patents as signals used to reduce information asymmetries in entrepreneurial finance. A theoretical model gives conditions for a unique separating equilibrium in which startup founders file for patents to signal invention quality to investors, as well as appropriating value. The theory allows for heterogeneous investors and examine the optimal match of different types of startups, as defined by the quality of their technology, to investors who differ in the amount of non financial capital they provide. The empirical analysis is consistent with the model's predictions using a novel dataset of Israeli startups that received external funding during the period 1994-2011.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19191.

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Date of creation: Jun 2013
Date of revision:
Publication status: published as Patents as Signals for Startup Financing† Annamaria Conti1, Jerry Thursby1 andMarie Thursby2 The Journal of Industrial Economics Special Issue: SYMPOSIUM ON PATENTS, ENTREPRENEURSHIP AND INNOVATION. Edited by Mark Schankerman Volume 61, Issue 3, pages 592–622, September 2013
Handle: RePEc:nbr:nberwo:19191
Note: IO PR
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