Working Paper: NBER ID: w19191
Authors: Annamaria Conti; Jerry Thursby; Marie C. Thursby
Abstract: We examine the role of patents as signals used to reduce information asymmetries in entrepreneurial finance. A theoretical model gives conditions for a unique separating equilibrium in which startup founders file for patents to signal invention quality to investors, as well as appropriating value. The theory allows for heterogeneous investors and examine the optimal match of different types of startups, as defined by the quality of their technology, to investors who differ in the amount of non financial capital they provide. The empirical analysis is consistent with the model's predictions using a novel dataset of Israeli startups that received external funding during the period 1994-2011.
Keywords: patents; startup financing; information asymmetries; entrepreneurial finance
JEL Codes: G14; O16; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| patents (O34) | investors (G24) |
| technology quality (L15) | patents (O34) |
| patents (O34) | external funding (O36) |
| technology quality (L15) | external funding (O36) |
| initial patents (O34) | startup formation (L26) |
| subsequent patents (O34) | new investors (G24) |
| patents (O34) | differentiate investors (G11) |