Patents, Innovation, and Performance of Venture Capital-backed IPOs
55 Pages Posted: 8 Dec 2013 Last revised: 17 Jan 2015
Date Written: January 15, 2015
We study the predictive power of patents on the long-run performance of venture capital (VC)-backed initial public offerings (IPOs). We show that VC-backed IPOs that have at least one patent at the time of the IPO substantially outperform other VC-backed IPOs, with 3-year buy-and-hold market-adjusted returns of -7.1% vs. -23.3%. On average, VC-backed IPOs without patents perform similarly to non-VC-backed IPOs. We also report that VC-backed IPOs from 1981-1998 outperformed other IPOs, but the pattern has reversed for IPOs from 1999-2006. Although a smaller proportion of non-VC-backed IPOs possess patents, those with patents also outperform those without patents.
Keywords: Initial public offerings, Venture capital, Patents, Innovation, Long-run performance
JEL Classification: G14, G24, G30
Suggested Citation: Suggested Citation