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The Informational Role of Patents in Venture Capital Financing

40 Pages Posted: 19 Sep 2010 Last revised: 7 Nov 2014

Jerry Cao


Po-Hsuan Hsu

University of Hong Kong

Date Written: June 8, 2011


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.

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

JEL Classification: G24, O34

Suggested Citation

Cao, Jerry and Hsu, Po-Hsuan, The Informational Role of Patents in Venture Capital Financing (June 8, 2011). Available at SSRN: or

Jerry Cao


No Address Available

Po-Hsuan Hsu (Contact Author)

University of Hong Kong ( email )

Pokfulam Road
Hong Kong

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