Patents and Alliances as Venture Capital Screening Criteria — Investigating Industry Differences

Abstract

We investigate the role of patents and alliances as venture capital selection criteria in the screening of business proposals. Our analyses address two research gaps. First, we provide evidence on the importance of patents and alliances in raising venture capital, two resources that have received surprisingly little attention as selection criteria so far. Second, by testing for industry differences in this context we examine the potential moderating effect of industry affiliation in venture capitalists’ (VCs) decision making. We analyze data from a conjoint-based survey among 102 European and 85 U.S. VCs from different high-tech industries. While both existing patents and written alliance agreements have a comparatively strong impact on VCs’ decision making overall, their importance differs significantly between discrete and complex industries. Patent protection is perceived the most important selection criterion in the biotech industry, while VCs from the ICT or cleantech sector put the highest emphasis on sales alliances.

Keywords: patents, alliances, venture capital, industry differences, contingency effects

JEL Classification: M13, O34, G24