The Role Of Patents In Venture Capital

Venture capital has expanded rapidly in recent years.Generally,venture capital provides financial support for innovative firms,which is beneficial for their future growth and expansion.At the very beginning of a VC project,the venture capital and the innovative firm face the difficulty of information asymmetry.As a result,venture capital firms seek various signals in order to reduce risk and uncertainty.This article is emphasized on patent signals.At first,we start from the investment decision,and then we discuss the effect of signals,which includes how to deal with information asymmetry and how patent signals influence venture capital.After introducing all the concepts,we establish models to study the effect of patent signals on venture capital.At last,we come to the conclusions of the model,that patents could positively influence venture capital financing.Based on our conclusions,we make suggestions for venture capital and VC-backed firms.