Abstract
The creation of value through innovation is among the defining traits of new technology-driven ventures. In this context, patents are an important signalling device to attract external financing. In this paper we contribute to the literature by investigating the value of innovations for start-ups supported by the European Investment Fund (EIF), through its venture capital (VC) instruments, in the years 1996–2014. The value of innovations is measured through patent applications and renewals. We employ an established econometric model to estimate the euro value of innovations based on patent renewal decisions. We find that start-ups in the life sciences hold, on average, the most valuable innovations. At the same time, we find compelling evidence that selection bias, causing less promising inventions to be excluded a priori from patenting, is pervasive across industries and/or regions of Europe. Implications for policy and research are discussed.
The views and opinions expressed in this paper are those of the author and can under no circumstances be attributed to the European Investment Fund. A prior version of this chapter has been part of the EIF Working Paper series with the number 2017/45 (Signore and Torfs 2017). This is an updated chapter based on the prior version.
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Notes
- 1.
- 2.
We considered implementing a full-fledged real option pricing model (e.g. Schwartz 2004). However, the data at our disposal could not satisfy the level of granularity and specificity required by such approach.
- 3.
For an elaboration on the matching methodology and a comprehensive collection of descriptive statistics, see Signore and Torfs (2017).
- 4.
For the remaining 1957 innovations, current ownership did not coincide with the original applicants. It ensures that these innovations were acquired by EIF-backed start-ups. Interestingly, the ownership of about 38% of acquired innovations further transitioned to other entities, following either the acquisition of the start-up or its bankruptcy.
- 5.
The figure does not account for utility models and designs, excluded from the analysis. In addition, note that the initial year of the innovation typically equates to the priority year of its underlying patents.
- 6.
Additional delay is most likely introduced by the subsequent matching with firms’ identities.
- 7.
Available at http://www.investeurope.eu/media/12926/sectoral_classification.pdf [accessed: 11/2017].
- 8.
The trade-off against full coverage was a need of PO-specific routines to scrape and/or bulk obtain data.
- 9.
We find over 7% of patenting ICT start-ups consistently following this route, while in other sectors, the incidence is lower than 1%. Nevertheless, 37% of patentors adopted such practice for at least one innovation.
- 10.
The upper bound restriction is due to renewal data being collected up until 31 December 2016. As such, most applications submitted after 2012 will not have witnessed enough time for the accrual of renewal fees.
- 11.
For instance, 19 March 2013 witnessed the largest price increase in USPTO renewal fees. Prices increased from a minimum of 24%, up to a 54% raise for the third and last renewal instalment.
- 12.
To avoid the difference in average word length be driven by different patent languages, we only calculate this index for main/equivalent patents written in English.
- 13.
The model’s sensitivity to this assumption is tested by varying s in the range of 5–15%. Because of the model’s parametric form, all original MLE estimates are maintained, save for δ which shifts accordingly to counteract the increase or decrease in s. For additional robustness, we tested a firm-specific discount rate s, leveraging on firms’ weighted average cost of capital (based on the methodology of Lünnemann and Mathä 2002). Results are very similar to the ones reported in the remainder of the paper.
- 14.
See Bessen (2008) for an overview of the literature on patent value distributions.
- 15.
However, note that PCT applications never requiring the involvement of the EPO are also in this subset.
- 16.
This phenomenon may not only be limited to innovations lacking the potential to produce outstanding economic returns but also covers IPs whose revenues may be harder to protect, easier to imitate, etc.
- 17.
Unfortunately, our dataset does not track financing rounds. Thus, in the remainder, we rely on the assumption that more mature start-ups face a higher likelihood of follow-on investment than younger ventures.
- 18.
While the skewed distribution imposes the use of medians, averages lead to qualitatively similar results.
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Signore, S. (2020). The Private Value of Patents for Government-supported Start-Ups: The Case of the European Investment Fund. In: Moritz, A., Block, J.H., Golla, S., Werner, A. (eds) Contemporary Developments in Entrepreneurial Finance. FGF Studies in Small Business and Entrepreneurship. Springer, Cham. https://doi.org/10.1007/978-3-030-17612-9_7
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