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Patent collateral, investor commitment, and the market for venture lending

Author

Listed:
  • Rosemarie Ziedonis

    (University of Oregon)

  • Carlos Serrano

    (Pompeu Fabra University)

  • Yael Hochberg

    (MIT Sloan School of Management)

Abstract

The use of debt to finance risky entrepreneurial-firm projects is rife with informational and contracting problems. Nonetheless, we document widespread lending to startups in three innovation-intensive sectors and in early stages of development. At odds with claims that the secondary patent market is too illiquid to shape debt financing, we find that intensified patent trading increases the annual rate of startup lending, particularly for startups with more redeployable (less firm-specific) patent assets. Exploiting differences in venture capital (VC) fundraising cycles and a negative capital-supply shock in early 2000, we also find that the credibility of VC commitments to refinance and grow fledgling companies is vital for such lending. Our study illuminates friction-reducing mechanisms in the market for venture lending, a surprisingly active but opaque arena for innovation financing, and tests central tenets of contract theory.

Suggested Citation

  • Rosemarie Ziedonis & Carlos Serrano & Yael Hochberg, 2015. "Patent collateral, investor commitment, and the market for venture lending," 2015 Meeting Papers 1170, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:1170
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • 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

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