Literature review
The relationship between private equity and venture capital financing and intellectual property rights (IPRs) in European companies is a crucial area of research, given its significant implications for innovation, economic growth, and the green and digital transitions.
This review synthesises findings from various studies that explore how private equity and venture capital investments influence IPR activities, particularly patents and trade marks, in European private companies.
This study builds on the findings of the EUIPO/EPO (2023) study, “Patents, Trade Marks, and Startup Finance,” which analysed the role of intellectual property rights (IPRs), specifically patents and trade marks, in facilitating access to finance for European startups. The EUIPO/EPO study explored the links between IPR filings by startups and their success in raising venture capital (VC), as well as the signalling power of patents and trade marks as predictors of successful exit strategies for investors.
Figure 2: Private Equity and Venture Capital Euros invested in EU27 companies, 2007–2023
Note: Private Equity and Venture Capital investments in EU27 companies between 2007 and 2023. The chart above exhibits Invest Europe’s latest data, which differs from that used in this study.
p €859bn
invested by Private Equity and Venture Capital in EU27 companies between 2007 and 2023
The growing role of Private Equity in European economic growth
As companies grow, their need for financing often increases, met by private equity and venture capital firms. The expansion of private equity in Europe has been notable (see: Figure 2; Invest Europe, 2024), particularly in enhancing productivity and economic growth. Raposo and Lehmann (2019) highlighted the growing role of private equity in European capital markets, emphasising its impact on corporate governance reforms and operational efficiencies. Batrancea et al. (2022) stressed that access to private equity is vital for small and medium-sized enterprises (SMEs), which constitute a significant portion of the European economy.
Their study underscored that private equity, along with other financial supports, is instrumental in driving economic growth across the EU. Berezinets et al. (2022) found that the presence of private equity investors positively impacts the financial performance of target companies, especially those that are financially distressed, by improving their market stability and growth prospects. Startups with intellectual property rights (patents and trade marks) show better survival rates as these factors provide financial stability and market protection (Cegiełka, 2020).
The impact of Intellectual Property on venture capital access
Startups often seek venture capital to secure the initial funds needed for growth. Securing IP rights transforms intellectual property into valuable assets, signalling high quality to investors, thereby facilitating access to VC. Previous literature indicates a positive effect of trade mark and patent applications on VC access. Engel et al. (2007) found that VC-backed companies have a higher number of patent applications than non-VC-backed companies. Furthermore, these applications are typically filed before VC investment, demonstrating that investors prefer companies with a history of innovative output; post-investment, the number of patent applications does not significantly differ. Block et al. (2014) identified a positive relationship between the presence and number of trade marks and VC valuation, suggesting an inverted U-shaped relationship where the value of trade mark applications decreases in later funding rounds. Zhou et al. (2016) further examined the role of IP rights in VC funding, finding that startups with both patents and trade marks secure higher funding amounts, especially in early VC rounds.
The influence of Private Equity on innovation and governance
Amess, Stiebale, and Wright (2020) suggested that private equity investment leads to an increase in both the number and quality of patents, indicating that such investments can positively influence innovative activities within companies. Li et al. (2014) argued that private equity investments lead to clearer property rights, standardised incentive systems, and improved decision-making mechanisms, which are essential for enhancing the financial performance and governance of the investee companies. In the context of leveraged buyouts (LBOs), Amess, Stiebale, and Wright (2016) found a positive causal effect of LBOs on patent stock and quality-adjusted patent stock. Lerner, Sorensen, and Stromberg (2011) found no evidence that LBOs were associated with a decrease in innovation activities.
Strategic importance of intellectual property rights
The strategic importance of intellectual property rights was explored by Orsi and Coriat (2006), who discussed the evolving role of IPRs, particularly patents and trade marks, in the knowledge economy. They argue that IPRs have become critical assets that enhance corporate value and offer competitive advantages. Gill and Heller (2019) support this view, demonstrating that companies with substantial patent portfolios can use these assets as collateral to ease debt financing restrictions. Their research shows that larger and more valuable patent stocks lead to higher debt ratios, particularly in tech-oriented and research-intensive companies, underscoring the financial capacity that robust IPR portfolios provide to innovative companies. IPRs, particularly patents and trade marks, enhance a company’s ability to attract venture capital, improve survival rates, and facilitate higher funding amounts. Private equity investments further bolster innovation, corporate governance, and financial performance, in all stages of the company’s life. The synergy between private equity and intellectual property rights plays a critical role in driving economic growth and corporate success in Europe.