Patent Collateral, Investor Commitment, and the Market for Venture Lending

43 Pages Posted: 8 Oct 2014

See all articles by Yael V. Hochberg

Yael V. Hochberg

National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business

Carlos J. Serrano

Universitat Pompeu Fabra, Barcelona GSE

Rosemarie Ham Ziedonis

Boston University - Questrom School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 7, 2014

Abstract

The use of debt to finance risky entrepreneurial-firm projects is rife with informational and contracting problems. Nonetheless, we document widespread lending to startups in three innovation-intensive sectors and in early stages of development. At odds with claims that the secondary patent market is too illiquid to shape debt financing, we find that intensified patent trading increases the annual rate of startup lending, particularly for startups with more re- deployable (less firm-specific) patent assets. Exploiting differences in venture capital (VC) fundraising cycles and a negative capital-supply shock in early 2000, we also find that the credibility of VC commitments to refinance and grow fledgling companies is vital for such lending. Our study illuminates friction-reducing mechanisms in the market for venture lending, a surprisingly active but opaque arena for innovation financing, and tests central tenets of contract theory.

Keywords: Entrepreneurial Finance, Financial Intermediation, Market for Patents, Venture Capital, Venture Lending

JEL Classification: L14, L26, G24, O16, O3

Suggested Citation

Hochberg, Yael V. and Serrano, Carlos J. and Ziedonis, Rosemarie Ham, Patent Collateral, Investor Commitment, and the Market for Venture Lending (October 7, 2014). Available at SSRN: https://ssrn.com/abstract=2506911 or http://dx.doi.org/10.2139/ssrn.2506911

Yael V. Hochberg

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Carlos J. Serrano (Contact Author)

Universitat Pompeu Fabra, Barcelona GSE ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

HOME PAGE: http://www.econ.upf.edu/~cserrano

Rosemarie Ham Ziedonis

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

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