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The Informational Role of Patents in Venture Capital Financing


Jerry Cao


Singapore Management University - Lee Kong Chian School of Business

Po-Hsuan Hsu


University of Hong Kong

June 8, 2011


Abstract:     
This paper empirically examines the informational role of start-ups’ patenting activities in venture capital (VC) financing, based on comprehensive patent data for VC-backed firms in the U.S. from 1976 through 2005. We find that start-ups’ patenting activities before receiving VC investment increase with information asymmetry and predict entrepreneurial performance. Moreover, start-ups with patenting activities receive greater funding from more VC funds, experience longer incubation periods, and slowdown in patenting activities right after receiving VC investment. Our empirical evidence suggests that patenting activities effectively mitigate information problems between entrepreneurs and venture capitalists.

Number of Pages in PDF File: 40

Keywords: Venture capital; innovation; patents; entrepreneur; information asymmetry

JEL Classification: G24, O34

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Date posted: September 19, 2010 ; Last revised: November 12, 2013

Suggested Citation

Cao, Jerry and Hsu, Po-Hsuan, The Informational Role of Patents in Venture Capital Financing (June 8, 2011). Available at SSRN: http://ssrn.com/abstract=1678809 or http://dx.doi.org/10.2139/ssrn.1678809

Contact Information

Jerry Cao
Singapore Management University - Lee Kong Chian School of Business ( email )
50 Stamford Road
#04-01
Singapore, 178899
Singapore
65-6828-0273 (Phone)
65-6828-0427 (Fax)

Po-Hsuan Hsu (Contact Author)
University of Hong Kong ( email )
Pokfulam Road
Hong Kong
China
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