Quality Signals? The Role of Patents, Alliances, and Team Experience in Venture Capital Financing

Abstract

Observable resources, particularly patents, alliances, and team experience, are known to impact a start-up’s ability to attract venture capital financing. In this context they potentially fulfill a two-fold function: as productive assets and, likely, as signals of characteristics of a venture that are not observable at the time of assessment. In particular, patents, alliances, and team experience may serve as signals of the unobservable quality of a venture’s technology. Most existing studies based on firm-level transaction data cannot disentangle signaling from productive effects. Using a conjoint-based survey among 187 European and U.S. venture capitalists, we find they rely on research alliances and, partly, on team experience as signals of technological quality. While patents impact the venture capitalists’ decision making in their property rights function, we find no indication that they serve as technology quality signals.

Keywords: patents, alliances, venture capital, signaling, technology

JEL Classification: M13, O34, G24