How Resilient is Venture-Backed Innovation? Evidence from Four Decades of U.S. Patenting

54 Pages Posted: 7 May 2020 Last revised: 29 Apr 2021

See all articles by Sabrina T Howell

Sabrina T Howell

New York University (NYU) - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Ramana Nanda

Imperial College Business School; Harvard University - Entrepreneurial Management Unit

Richard Townsend

University of California, San Diego (UCSD) - Rady School of Management

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Date Written: January 1, 2021

Abstract

By comparing patenting among VC-backed firms to the universe of U.S. patents over the period 1976-2019, we document that while patents filed by VC-backed firms are of significantly higher quality and economic importance than the average patent, VC-backed innovation is substantially more procyclical than innovation in the broader economy. This is driven by early-stage startups, whose innovation in recessions is relatively less cited, less original, less general, and less related to fundamental science. Our findings are most consistent with frictions in capital supply playing an important role, leading VCs to change their investment focus during downturns towards less innovative startups.

Keywords: Patents, Business Cycles, Recessions

JEL Classification: G24, O31

Suggested Citation

Howell, Sabrina T and Lerner, Josh and Nanda, Ramana and Townsend, Richard, How Resilient is Venture-Backed Innovation? Evidence from Four Decades of U.S. Patenting (January 1, 2021). Harvard Business School Entrepreneurial Management Working Paper No. 20-115, Available at SSRN: https://ssrn.com/abstract=3594239. or http://dx.doi.org/10.2139/ssrn.3594239

Sabrina T Howell

New York University (NYU) - Leonard N. Stern School of Business ( email )

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HOME PAGE: http://www.sabrina-howell.com

National Bureau of Economic Research (NBER) ( email )

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Josh Lerner (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)

HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ramana Nanda

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Harvard University - Entrepreneurial Management Unit ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.people.hbs.edu/rnanda

Richard Townsend

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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