TY - JOUR AU - Cockburn, Iain M AU - MacGarvie, Megan TI - Patents, Thickets, and the Financing of Early-Stage Firms: Evidence from the Software Industry JF - National Bureau of Economic Research Working Paper Series VL - No. 13644 PY - 2007 Y2 - November 2007 DO - 10.3386/w13644 UR - http://www.nber.org/papers/w13644 L1 - http://www.nber.org/papers/w13644.pdf N1 - Author contact info: Iain M. Cockburn Questrom School of Business Boston University 595 Commonwealth Ave Boston, MA 02215 Tel: 617/588-1486 E-Mail: cockburn@bu.edu Megan MacGarvie Boston University School of Management 595 Commonwealth Avenue, Room 522H Boston, MA 02215 Tel: 617/353-9490 Fax: 617/353-6667 E-Mail: mmacgarv@bu.edu M1 - published as William J. Baumol, Melissa A. Schilling, Edward N. Wolff. "The Superstar Inventors and Entrepreneurs: How Were They Educated?," in Thomas Hellman and Scott Stern, editors, "Entrepreneurship: Strategy and Structure" Journal of Economics and Management Strategy 18(3), Fall 2009 (Blackwell Publishing) (2009) M3 - presented at "Entrepreneurship: Strategy and Structure Conf.", September 13-15, 2007 AB - The impact of stronger intellectual property rights in the software industry is controversial. One means by which patents can affect technical change, industry dynamics, and ultimately welfare, is through their role in stimulating or stifling entry by new ventures. Patents can block entry, or raise entrants' costs in variety of ways, while at the same time they may stimulate entry by improving the bargaining position of entrants vis-à-vis incumbents, and supporting a "market for technology" which enables new ventures to license their way into the market, or realize value through trade in their intangible assets. One important impact of patents may be their influence on capital markets, and here we find evidence that the extraordinary growth in patenting of software during the 1990s is associated with significant effects on the financing of software companies. Start-up software companies operating in markets characterized by denser patent thickets see their initial acquisition of VC funding delayed relative to firms in markets less affected by patents. The relationship between patents and the probability of IPO or acquisition is more complex, but there is some evidence that firms without patents are less likely to go public if they operate in a market characterized by patent thickets. ER -