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

37 Pages Posted: 18 Feb 2009

See all articles by Carolin Häussler

Carolin Häussler

University of Passau

Dietmar Harhoff

Max Planck Institute for Innovation and Competition; Ludwig-Maximilians-Universität München; Centre for Economic Policy Research (CEPR)

Elisabeth Mueller

Catholic University of Lille - IESEG School of Management

Date Written: January 2009

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: biotechnology, intellectual property rights, patents, R&D, venture capital

JEL Classification: G24, L20, L26, O30, O34

Suggested Citation

Haeussler, Carolin and Harhoff, Dietmar and Mueller, Elisabeth, To Be Financed or Not - The Role of Patents for Venture Capital Financing (January 2009). CEPR Discussion Paper No. DP7115, Available at SSRN: https://ssrn.com/abstract=1345641

Carolin Haeussler

University of Passau ( email )

Innstrasse 27
Passau, 94032
Germany

Dietmar Harhoff (Contact Author)

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, Bayern 80539
Germany
+49 89 24246 550 (Phone)
+49 89 24246 599 (Fax)

HOME PAGE: http://www.ip.mpg.de

Ludwig-Maximilians-Universität München ( email )

Munich, 80539
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Elisabeth Mueller

Catholic University of Lille - IESEG School of Management ( email )

Socle de la Grande Arche
1 Parvis de la Defense
Puteaux, Paris 92800
France

HOME PAGE: http://https://www.ieseg.fr/enseignement-et-recherche/enseignant/?id=303434

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