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Financial signaling by innovative nascent ventures: The relevance of patents and prototypes |
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| Authors: | David B AudretschWerner Bönte Prashanth Mahagaonkar |
| Institution: | a Institute for Development Strategies, Indiana University, 1315 E. 10th Avenue, SPEA Suite 201, Bloomington, IN 47405, United States b Schumpeter School of Business and Economics, Jackstädt Center for Research on Entrepreneurship and Innovation, University of Wuppertal, Room M.12-27, Gauss Str. 20, 42119 Wuppertal, Germany c Schumpeter School of Business and Economics, University of Wuppertal, Room M.12-30, Gauss Str. 20, 42119 Wuppertal, Germany |
| Abstract: | External finance is a central issue for innovative nascent ventures. In this study, we argue that innovative nascent ventures may use patents to signal appropriability and prototypes to signal feasibility to potential investors. Using new data on 906 nascent ventures, we find that nascent ventures with patents or patent applications as well as prototyped innovations are more likely to obtain equity finance. However, nascent ventures that can solely signal appropriability by patenting are not more likely to obtain equity finance. This result may indicate that venture capitalists and business angels assign higher value to the appropriability signal when coupled with feasibility and vice versa. |
| Keywords: | Innovation Entrepreneurship Finance Information asymmetries |
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