Patents and Early‐Stage Financing: Matching versus Signaling

This paper investigates the role of patents on early-stage financing. We consider two questions: are patents signals of quality and why do patents relate to venture capital (VC) financing but not angel financing? Analyzing data from 468 Canadian early-stage ventures, we show that patents are not signals of quality. Instead, the data support a match-on-financing need hypothesis: ventures match with VCs, who have financial capacity to support...