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Patents as Signals for Startup Financing

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  • Annamaria Conti
  • Jerry Thursby
  • Marie C. Thursby

Abstract

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.

Suggested Citation

  • Annamaria Conti & Jerry Thursby & Marie C. Thursby, 2013. "Patents as Signals for Startup Financing," NBER Working Papers 19191, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19191
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    References listed on IDEAS

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    Cited by:

    1. Mohammadi, Ali & Basir, Nada O. & Beyhaghi, Mehdi, 2015. "Research Intensity and Financial Analysts Earnings Forecast: Signaling Effects of Patents," Working Paper Series in Economics and Institutions of Innovation 397, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    2. Hanna Hottenrott & Bronwyn H. Hall & Dirk Czarnitzki, 2016. "Patents as quality signals? The implications for financing constraints on R&D," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 25(3), pages 197-217, April.
    3. Patrick Gaule, 2015. "Patents and the Success of Venture-Capital Backed Startups: Using Examiner Assignment to Estimate Causal Effects," CERGE-EI Working Papers wp546, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    4. Joan Farre-Mensa & Deepak Hegde & Alexander Ljungqvist, 2017. "What is a Patent Worth? Evidence from the U.S. Patent “Lottery”," NBER Working Papers 23268, National Bureau of Economic Research, Inc.
    5. Czarnitzki, Dirk & Doherr, Thorsten & Hussinger, Katrin & Schliessler, Paula & Toole, Andrew A., 2016. "Knowledge Creates Markets: The influence of entrepreneurial support and patent rights on academic entrepreneurship," European Economic Review, Elsevier, vol. 86(C), pages 131-146.
    6. Comino, Stefano & Graziano, Clara, 2015. "How many patents does it take to signal innovation quality?," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 66-79.
    7. Masatoshi Kato & Koichiro Onishi & Yuji Honjo, 2017. "Does patenting always help new-firm survival?," Discussion Paper Series 159, School of Economics, Kwansei Gakuin University, revised May 2017.
    8. repec:kap:sbusec:v:50:y:2018:i:1:d:10.1007_s11187-017-9898-y is not listed on IDEAS
    9. Farre-Mensa, Joan & Hegde, Deepak & Ljungqvist, Alexander P., 2016. "The Bright Side of Patents," CEPR Discussion Papers 11091, C.E.P.R. Discussion Papers.
    10. Lahr, Henry & Mina, Andrea, 2016. "Venture capital investments and the technological performance of portfolio firms," Research Policy, Elsevier, vol. 45(1), pages 303-318.
    11. Victoria Shestalova & Chiara Criscuolo & Nick Johnstone & Carlo Menon, 2014. "Renewable energy policies and cross-border investment: evidence from M&A in solar and wind energy," CPB Discussion Paper 288, CPB Netherlands Bureau for Economic Policy Analysis.
    12. Haeussler, Carolin & Harhoff, Dietmar & Mueller, Elisabeth, 2014. "How patenting informs VC investors – The case of biotechnology," Research Policy, Elsevier, vol. 43(8), pages 1286-1298.
    13. Signore, Simone & Torfs, Wouter, 2017. "The European venture capital landscape: an EIF perspective. Volume IV: The value of innovation for EIF-backed startups," EIF Working Paper Series 2017/45, European Investment Fund (EIF).
    14. Harhoff, Dietmar & Stoll, Sebastian, 2015. "Exploring the Opaqueness of the Patent System - Evidence from a Natural Experiment," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 496, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    15. Felipe Rojas & Elena Huergo, 2016. "Characteristics of entrepreneurs and public support for NTBFs," Small Business Economics, Springer, vol. 47(2), pages 363-382, August.
    16. repec:eee:respol:v:46:y:2017:i:9:p:1606-1628 is not listed on IDEAS

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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