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

Caroline Haeussler, Dietmar Harhoff () and Elisabeth Müller
Authors registered in the RePEc Author Service: Carolin Häussler () and Elisabeth Mueller ()

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

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 uncertainty 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.

Keywords: patents; venture capital; intellectual property rights; R&D; biotechnology (search for similar items in EconPapers)
JEL-codes: O30 O34 L20 L26 G24 (search for similar items in EconPapers)
Date: 2009-01
New Economics Papers: this item is included in nep-ino, nep-ipr and nep-pr~
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Working Paper: To Be Financed or Not: The Role of Patents for Venture Capital Financing (2009) Downloads
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