Patent Activity and Startup Funding in Sweden : An empirical study conducted on Swedish startups

Abstract

We run a multiple linear regression model to test (1) whether filing at least one patent application before the first round of funding increases startups’ first-round funding amount and (2) whether the number of filed patent applications before the first funding round increases startups first-round funding amount. We apply a dataset of Swedish startups founded between 1990-2007. Our findings suggest that successful patent applications increase the amount of startup funding in the first round. Having filed at least one patent application increases the first-round funding amount by 54.3% compared to their non-patenting counterparts. In addition, we find that a one standard deviation increase in the number of patent applications increases the funding amount by 14.9%, compared to its mean. These results imply that patents reduce the information asymmetries between startups and investors and that investors value startups with innovative activity, which can have important implications for Swedish startups. Even though patents are suggested to reduce information asymmetries and thus increase investors’ first-round funding, further research is suggested to account for additional financing drivers, besides the ones accounted for in this study.