Patent collateral, investor commitment, and the market for venture lending

This paper investigates the market for lending to technology startups (i.e., venture lending) and examines two mechanisms that may facilitate trade within it: (1) the ‘salability’ of patent collateral; and (2) the credible commitment of existing equity investors. We find that intensified trading in the secondary patent market is strongly related to the annual rate of startup lending, particularly for startups with more redeployable patent assets. Moreover, we show that the credibility of venture capitalist commitments to reinvest in their startups’ next round of financing can be critical for startup debt provision. Utilizing the crash of 2000 as a severe and unexpected capital supply shock for VCs, we show that lenders continue to finance startups with recently funded investors better able to credibly commit to refinance their portfolio companies, but withdraw from otherwise-promising projects that may have needed their funds the most. The findings are consistent with predictions of incomplete contracting and financial intermediation theory.Accepted manuscrip

Corporate venture capital and the returns to acquiring portfolio companies

A prominent motive for corporate venture capital (CVC) is the identification of entrepreneurial-firm acquisition opportunities. Consistent with this view, we find that one of every five startups purchased by 61 top corporate investors from 1987 through 2003 is a venture portfolio company of its acquirer. Surprisingly, our analysis reveals that takeovers of portfolio companies destroy significant value for shareholders of acquisitive CVC investors, even though these same investors are "good acquirers" of other entrepreneurial firms. We explore numerous explanations for these puzzling findings, which seem rooted in managerial overconfidence or agency problems at the program level.Corporate venture capital Acquisitions Entrepreneurial finance Governance Overconfidence

Patent collateral investor commitment and the market for venture lending

Este artículo investiga el mercado para préstamos a nuevas empresas de tecnología (startups), y analiza dos mecanismos que facilitan acceso al crédito en este mercado: la posibilidad de la venta de las patentes comprometidas como activos de garantía en préstamos y la intermediación de empresas de capital-riesgo (venture capital) entre las startups y los acreedores. Encontramos que una mayor liquidez en el mercado secundario de patentes aumenta la tasa anual de préstamos de las startups, sobre todo para las startups con patentes de menor especificidad (más fácilmente asignables a usos o usuarios alternativos). Además, mostramos que la credibilidad de los compromisos de las empresas de venture capital para refinanciar y hacer crecer startups es vital para que estas obtengan préstamos. Después de un shock en la oferta de capital del que las empresas de venture capital se nutren, mostramos que los acreedores continúan financiando startups cuyos inversores pueden comprometerse con una mayor credibilidad para refinanciar su cartera de startups, mientras que dejan de ofrecer préstamos al resto de proyectos, aunque estos sean igualmente prometedores. Los resultados son coherentes con las predicciones de la teoría de la contratación incompleta y la intermediación financieraThis paper investigates the market for lending to technology startups (i.e. venture lending) and examines two mechanisms that facilitate trade within it: the ’saleability’ of patent collateral and fi nancial intermediaries. We fi nd that intensified trading in the secondary market for patent assets increases the annual rate of startup lending, particularly for startups with more re-deployable patent assets. Moreover, we show that the credibility of venture capitalist commitments to refi nance and grow fledgling companies is vital for startup debt provision. Following a severe and unexpected capital supply shock for VCs, we fi nd a striking fl ight to safety among lenders, who continue to fi nance startups whose investors are better able to credibly commit to refi nancing their portfolio companies, but withdraw from otherwise promising projects that may have most needed their funds. The findings are consistent with predictions of incomplete contracting and financial intermediation theor