There is a virtuous cycle between private equity and venture capital investment and the creation of intellectual property rights. Companies that have patents and trade marks often raise more funding from private equity and venture capital. And higher levels of private equity and venture capital investment can lead to higher numbers of new patents and trade marks.
Companies that develop and protect patents and trade marks early on are more likely to continue to create patents and trade marks. They understand that protecting their innovations also means protecting their businesses.
Table 1 quantifies the relationship between pre-funding trade marking and patenting activity, and the subsequent amounts received from private equity and venture capital firms, expressed as the result of the log-log linear model seeing amount invested by funds (in thousands of euros) as the dependent variable. The key independent variables of interest were the logarithm of pre-funding trade marking activity (‘Previous trade mark stock (logged)’) and the logarithm of pre-funding patenting activity (‘Previous patent stock (logged)’). Control variables are related to investment stage (i.e. the life stage of the company), company sector, and country of applicant origin to isolate the effect of IP activity on funding amounts.
When interpreting those models, it is worth emphasising that only firms that received any private equity or venture capital investment are included in the sample. As shown in previous EUIPO/EPO report (EUIPO/EPO, 2023), prior IPR activity significantly increases startups’ odds of receiving venture capital funding. Here, the focus is rather on examining the relationship between previous IPR activity and amount invested by private equity and venture capital, conditional on having received such investment previously.
The coefficients prove to be positive and statistically significant at the 1% level. Trade mark activity before funding indicates that a 10% increase in the pre-funding trade mark activity is associated with a 3.41% increase in the funding amount, holding other variables constant. Patenting activity before funding suggests that a 10% increase in the pre-funding patent activity corresponds to a 0.64% increase in the funding amount, all else being equal. Though the impact is smaller than that of trade marking, patenting activity still plays an important role in predicting funding.
These models underscore the importance for firms seeking funding to focus on building strong IP portfolios, as such activities may signal value and innovation potential to potential investors, thereby attracting larger amounts of funding.
Table 1
Summary of Linear Models
Dependent variable: | |
Previous trade mark stock (logged) | 0.341*** |
(0.010) | |
Previous patent stock (logged) | 0.064*** |
(0.010) | |
Controls: company sector and country | |
. | |
Observations | 115,086 |
R2 | 0.930 |
Adjusted R2 | 0.930 |
| Residual Std. Error | 1.781 (df = 115040) |
| F Statistic | 33,410.530*** (df = 46; 115040) |
Note: *p**p***p<0.01
An additional step was taken by exploring log-linear models having amounts invested by private equity and venture capital funds (in thousands of euros) as the dependent variable, and boolean values of trade marking and patenting activity before investment. Table 1.1 presents the results.
Table 1.1
Summary of Linear Models, dummies
Dependent variable: | |
Previous trade mark (dummy) | 0.472*** |
(0.014) | |
Previous patent (dummy) | 0.002 |
(0.016) | |
Controls: company sector and country | |
. | |
Observations | 115,086 |
R2 | 0.930 |
Adjusted R2 | 0.930 |
Residual Std. Error | 1.783 (df = 115040) |
F Statistic | 33,321.080*** (df = 46; 115040) |
To interpret the coefficients, we use the algebraic properties of the exponential and logarithmic functions, allowing a better estimate of the percentage change in our dependent variable (in thousands of euros) consequential to a unit change as:
%Δy=100[eβ-1]
The coefficient for trade mark activity before investment is associated with approximately e0.472-1≈60.3%, while the coefficient for patenting activity before investment resulted to be not significant, indicating a non-meaningful impact of this IP right on the amounts invested by private equity and venture capital funds.
Another step was taken by breaking the sample and analysing the same models over three investment stages: venture, growth, and buyout. The results are presented in Table 1.2.
Venture investment encompasses three stages: (i) seed, where companies have not yet started mass production or distribution and are focused on completing research, product definition, or design, including market tests and prototype creation; (ii) start-up, where the product or service is fully developed, and the goal is to begin mass production or distribution and cover initial marketing efforts. These companies may still be in the process of being set up or have been in business for a short time but have not yet sold their product commercially; (iii) later stage venture, involving operating companies that may or may not be profitable and are likely already financed by venture capitalists. Growth capital refers to relatively mature companies seeking primary capital to expand and improve operations or enter new markets to accelerate business growth. Buyout is the stage involving mature companies where investments typically involve purchasing majority or controlling stakes.
Table 1.2
Summary of Linear Models, dummies
AmountInvested_000EUR_log | |||
Venture stage | Growth stage | Buyout stage | |
Previous trade mark (dummy) | 0.441*** | 0.371*** | 0.520*** |
(0.015) | (0.029) | (0.045) | |
Previous patent (dummy) | 0.012 | -0.228*** | 0.258*** |
(0.018) | (0.038) | (0.060) | |
Controls: company sector and country | |||
| |||
Observations | 65,703 | 30,362 | 16,134 |
R2 | 0.932 | 0.928 | 0.942 |
Adjusted R2 | 0.931 | 0.928 | 0.942 |
Residual Std. Error | 1.563 (df = 65661) | 1.873 (df = 30322) | 2.131 (df = 16094) |
F Statistic | 21,273.300*** (df = 42; 65661) | 9,793.289*** (df = 40; 30322) | 6,511.728*** (df = 40; 16094) |
Note: *p**p***p<0.01
For companies in the venture stage, the coefficient for trade mark activity before investment was 0.441, significant at the 1% level. This indicates that having trade mark activity before investment is associated with approximately e0.441-1≈55.4% higher investment amounts. The coefficient for patent activity before investment is 0.012, which is not statistically significant. This suggests, as for the full sample, that there is no meaningful impact on the amount invested by private equity funds in venture stage companies whether they have engaged in patent activity or not.
For companies in the growth stage, the coefficient for trade mark activity before investment was 0.371, significant at the 1% level. This indicates that having engaged in trade marking activity before investment is associated with approximately e0.371-1≈44.9% higher investment amounts.
For companies in the buyout stage, the coefficient for trade mark activity before investment is 0.520, which is significant at the 1% level. This indicates that having trade marked before investment is associated with approximately e0.520-1≈68.1% higher investment amounts. The coefficient for patent activity before investment is 0.258, significant at the 1% level. This suggests that having patent activity before investment is associated with approximately e0.258-1≈29.4% higher investment amounts. This positive impact indicates that, at the buyout stage, patents are viewed as valuable assets that enhance the company's attractiveness to investors.
A summary of the results is presented in Table 1.3.
Table 1.3
Interpreted Coefficients for Different Stages of Company Development
Variable | Venture stage | Growth stage | Buyout stage |
Previous trade mark (dummy) | 55.4% increase | 44.9% increase | 68.1% increase |
Previous patent (dummy) | No significant impact | 20.4% decrease | 29.4% increase |
Overall, the results indicate that trade mark activity before investment consistently shows a significant positive impact on the amount invested across all company stages, with the highest impact observed in buyout stage companies. Specifically, trade mark activity is associated with approximately 55.4%, 44.9%, and 68.1% higher investment amounts in venture, growth, and buyout stages, respectively. On the other hand, the impact of patent activity varies by stage. In the venture stage, patent activity does not significantly affect investment amounts. In the growth stage, patent activity is associated with a 20.4% decrease in investment, suggesting that investors might perceive it as less beneficial or potentially risky. However, in the buyout stage, patent activity is positively associated with investment amounts, leading to a 29.4% increase, indicating that patents are considered valuable assets by investors at this stage.