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To Be Financed Or No - The Role Of Patents For Venture Capital Financing

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Executive Summary

This paper investigates how patent applications and grants held by new ventures improve their ability to attract Venture Capital (VC) financing. The authors argue that investors are faced with considerable uncertainty and therefore rely on patents as signals when trying to assess the prospects of potential portfolio companies. For a sample of VC-seeking German and British biotechnology companies they have identified all patents filed at the European Patent Office (EPO). Applying hazard rate analysis, they find that in the presence of patent applications, VC financing occurs earlier. These results also show that VCs pay attention to patent quality, financing those ventures faster which later turn out to have high-quality patents.

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