Work

Venture capital investments and the technological performance of portfolio firms

Year: 2015

Type: article

Abstract: What is the relationship between venture capitalists’ selection of investment targets and the effects of these investments on the patenting performance of portfolio companies? In this paper, we set out a modelling and estimation framework designed to discover whether venture capital (VC) increases the patenting performance of firms or whether this effect is a consequence of prior investment selection based on firms’ patent output. We develop simultaneous models predicting the likelihood that firms attract VC financing, the likelihood that they patent, and the number of patents applied for and granted. Fully accounting for the endogeneity of investment, we find that the effect of VC on patenting is insignificant or negative, in contrast to the results generated by simpler models with independent equations. Our findings show that venture capitalists follow patent signals to invest in companies with commercially viable know-how and suggest that they are more likely to rationalise, rather than increase, the patenting output of portfolio firms.

Source: Research Policy

DOI: 10.1016/j.respol.2015.10.001

Authors: Henry Lahr, Andrea Mina

Institutions: The Open University, University of Cambridge

Language: English

Topic: Private Equity and Venture Capital

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $2,051

Funders: Technology Strategy Board, National Endowment for Science Technology and the Arts, Economic and Social Research Council, FP7 Socio-Economic Sciences and Humanities