Can Venture Capital Investment Foster Innovation In India?

Venture Capital(VC)and Private equity(PE)has been an important driver of innovation,entrepreneurship,and economic growth in India and around the world in 21 st century.The aim of this paper is to gauge the role of Venture Capital(VC)investments in fostering innovation of start-ups and other technology driven firms,which is reflected by their active participation in securing patents.I have empirically analyzed this co-relation.Specifically,I have compared the patenting rates of VC-backed and non-VC-backed companies in India.In order to test whether VC finance and related investments lead to an increase in patenting activity,I have used a longitudinal dataset composed of multiple Indian companies engaged in software,ITES and other high-tech manufacturing industries which includes companies which are funded by VC.Also,I have estimated the different econometric models on panel data,control factors that may affect the patenting behaviour of the company other than the presence of VC.This includes factors like founders' human capital and use of other sources of financing.The empirical analysis results reflect that VC investments positively affect patenting activity.This is proven by the result which shows that before receiving the funds from Venture capitalists/funds,these firms did not exhibit a higher patenting propensity than other firms.In India,the importance of filing patents has only just become apparent to young startups,as the country increasingly moves towards becoming an innovation hub in Asia.The contributors to innovation(start-up companies)are receiving support from Indian government which has begun offering incentives to encourage innovators to file patents,including attractive tax rebates and speedy documentation processing.These steps and incentives have boosted innovation ecosystem in India and is clearly reflected from the fact that World Intellectual Property Organization(WIPO)received 2,013 international patent applications from India in 2018.This was 27% higher than the number of applications filed in the previous year when only 1,583 patent applications were filed by India with the WIPO.This growth of 27% was the highest among countries.In India Venture capital(VC)is one of the major driving forces for supporting innovation amongst companies.There is a very clear message from the investors that the firms with patent plans have a better chance of getting funds.This is fostering R&D into companies of various nature,be it IT,ITES,Pharma,Services,Manufacturing etc.Established as well as Start-ups companies have realized that in order to scale-up and to receive funds,they need to differentiate themselves from others and one method is to create IPs(intellectual property),and the most common way of establishing and an IP is through getting a patent.This thesis will explore the contribution of VC/PE in India in fostering innovation using the data on Patents filings as a measure.This will be supported by empirical analysis of the impact of VC investments on innovation(patent filing activity).