Corporate Venture Capitalists and The Sale of Patents by High-Tech Startups

We consider how the resources and preferences of different type of venture capitalists (VCs) influence a startup’s likelihood of selling its patents. We find that, compared with startups backed solely by independent venture capitalists (IVCs), those backed by corporate venture capitalists (CVCs) are less likely to sell their patents, because those startups can expect higher economic returns by commercializing their inventions using complementary assets provided by their corporate investors. We then present our empirical analyses around theoretical mechanisms explaining our results. First, we consider how resources provided by CVCs reduce the likelihood of patent sale by a startup. We find that our general CVC effect becomes stronger when corporate investors possess greater amount of complementary assets measured by R&D expenses, capital expenditure, marketing expenses, and trademarks. Second, we consider how patent characteristics affect the likelihood of a patent sale by a startup. We find that, although a highly cited patent is more likely to be sold in general, the lower likelihood of a patent sale by CVC-backed startups is reduced even further when the patent is highly cited. Our results provide novel insights on how a startup’s external investors play an important role in the startup’s intellectual property management strategy.