ZEW Discussion Papers
To Be Financed or Not… – The Role of Patents for Venture Capital Financing
Haeussler, Carolin, Dietmar Harhoff und Elisabeth Müller (2009), To Be Financed or Not… – The Role of Patents for Venture Capital Financing, ZEW Discussion Paper No. 09-003, Mannheim. Download
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: biotechnology, intellectual property rights, patents, R&D and venture capital
