Venture Capital and Startup Innovation --Big Data Analysis of Patent Data--

Kazuaki Washimi
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Kazuaki Washimi: Bank of Japan

No 21-03-12, Bank of Japan Research Papers from Bank of Japan

Abstract: With the declining birthrate and ageing population and a decline in the working age population in Japan, Japanese firms face the need to strengthen innovation including the digital domain. Expectations are particularly high for startups as they play a vital role in creating innovative technology. In recent years, there have been a number of initiatives such as expediting patent examinations and introducing an open innovation tax incentive in Japan. It is expected that venture capital (VC) funds will play a pivotal role in providing financing for growth so that startups can continue research and development. On the other hand, due in part to data constraints, there has been limited research on startup innovation on a comprehensive scale and virtually no earlier literature on the impact of VC investments on innovation by portfolio companies in Japan. This paper summarizes those two issues with a focus on the number of patent applications as a proxy for innovation, and it also discusses challenges that lie ahead. First, taking a look at patent applications by startups, around 40 percent of startups have applied for a patent—albeit with significant variation across firms—which appears a much higher proportion than existing firms. An estimate of the impact of VC investments on innovation suggests that in about 60 percent of cases, the number of patent applications by portfolio companies significantly increased compared to a control group. While care should be taken in interpreting those studies as the results vary from firm to firm, these successful cases reflect the possibility that financing and management support including intellectual property management from VC funds could have contributed to an increase in patent applications. Challenges ahead include: (1) expanding investments in VC funds by institutional investors; (2) increasing opportunities for startups to go public in a way that encourages sustainable growth; and (3) establishing intellectual property strategies while maintaining and developing professional human resources in relevant areas.

Keywords: Venture Capital; Innovation; Synthetic Control; Bayesian Structural Time Series (search for similar items in EconPapers)
JEL-codes: G24 M13 O3 (search for similar items in EconPapers)
Date: 2021-03-12
New Economics Papers: this item is included in nep-acc, nep-cfn, nep-ent, nep-ino, nep-ipr and nep-sbm
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