Diana Heger

Review Essay: Regional Venture Capital Policy: UK and Germany Compared1

The government has become an important ‘player’ in the provision of early-stage, venture capital finance to nascent and growing businesses. Public funds have been invested by government agencies both directly to client firms and indirectly via investment in the funds of existing venture capital organisations. With the demise of technology stocks post 2000, governments have felt the need to become more involved in the provision of early-stage finance as private investors have increasingly withdrawn from equity markets that have produced unattractive longer-term returns to technology investments. Europe is in the forefront of designing programmes by which the state may intervene to address allegedly supply-side failures in the market for risk capital. Martin et al. (2003) analyse the regional Venture Capital policies of the UK and Germany reviewing the interactions between central governments and regional authorities. They conclude that there are significant regional venture capital gaps in both countries particularly at the earliest stages of investment. In this review, the major findings of their scientific study, key policy implications and future research implications are discussed.

A Test of the Quality of Concentration Indices

Theory predicts a positive relationship between market concentration and profitability in most scenarios. In empirical work, however, this relation is frequently not found or only a weak connection is observed. We compare the performance of concentration and market share variables, which are generated on the basis of the official industry classification, with information collected directly from firms. Information from companies on the number of competitors, their relative size and the intensity of price competition is highly significant in explaining profit levels, while none of the concentration indices performs well. Hence, the poor quality of industry data is responsible for the loose connection that is usually found between concentration and profitability.

Giving Away the Game? The Impact of the Disclosure Effect on the Patenting Decision

This article explores the propensity to patent in the light of the disclosure effect. Unlike earlier approaches concerned with the patenting decision, we take into account that a disclosure effect may decrease the merits of patenting by facilitating inventing around the patent for competitors. In our theoretical model, we find that the disclosure effect - contingent on the competitive environment of the inventor - possibly has substantial negative effects on the propensity to patent. An empirical investigation of the theoretical results finds support for the proposed effects.

Barriers to Entry and Profitability

Barriers to entry are regarded as major impediments to the working of markets. Entry must not necessarily actually take place - the perceived threat of entry may encourage incumbent firms to behave as if they are in a competitive market, even if they are not. We present empirical evidence on effects of perceived threat of entry on profitability. Using information from managers about how they assess the existence of entry barriers a strong impact of these assessments on profitability is confirmed. The number and the relative size of competitors also exert considerable effects. We find no statistically significant relation between the perceived threat of entry and the actual number of firms if the size of the relevant market is taken into account.

A Look at Both Sides of the Coin: Investigating the Protective and the Disclosure Effect of Patenting

This paper presents a theoretical and empirical investigation of the two basic effects of patenting: the positive effect of temporarily mitigating competition, and the negative effect of mandatory disclosure of a patent application. Providing empirical evidence for the presented theoretical results we find that (i) a technological lead and the propensity to patent are negatively related as opposed to common intuition, (ii) in industries with imperfect appropriability in case of secrecy the extent of the technological lead is positively associated with the propensity to patent, and that (iii) the intensity of patent protection mitigates the competitive threat a patentee faces.

The effect of broadband infrastructure on entrepreneurial activities: The case of Germany

This paper investigates whether the local infrastructure favours entrepreneurial activities. Besides the physical and knowledge infrastructure we take into account a county’s broadband availability by building an index which accounts for county-related specificities. We find that broadband availability fosters entrepreneurial activities particularly in high-tech sectors for which efficient ways of knowledge transfer is crucial.

Patent breadth as effective barrier to market entry

ABSTRACT Firms protecting their invention by a patent have the legal right to exclude competitors from using the patented matter. However, despite patent protection, competitors could enter the market by ‘inventing around’. Provided that inventing around becomes more difficult the broader a patent is, the strength of protection against market entry increases in patent breadth. Building on a theoretical benchmark formalizing the relationship between varying patent breadth and the threat of market entry, our empirical analysis supports the prediction that inventors perceive broad patents as effective market entry barriers.

Implications of uncertain patent rights for German start-ups’ commercialisation activities and access to external capital

Abstract Start-ups may benefit in two ways from patenting their inventions: from the appropriation value and the certification effect of patents which reveals the ventures’ ‘quality’ to investors. As long as the patent office’s grant decision is pending both benefits may not realise. We confirm for a data-set of German start-ups that pending patent applications decrease the likelihood of market launch for new ventures. Regarding the certification effect, we find that pending patent applications attract risk-seeking investors, while more cautious investors do not react upon pending patent applications.

The Role of Venture Capital Investments for Innovation in Young Technology-Based Firms

This paper examines the role of venture capital on a firms innovation activities by using a data set of German technology-based firms founded between 1996 and 2005. Innovation is proxied by patent counts and an index of innovativeness which reflects the degree to which a young firm has developed new technologies based on its own or external resources. The results show that VC financing has a positive impact on both patenting and innovativeness, even if we account for endogeneity of VC financing.

The Strategic Use of Fuzziness in Patent Specifications

Innovators seek to protect their intellectual assets by patenting them, at the same time trying to avoid any disclosure of critical knowledge. Given that a patent specification has to include a clear description of the patented matter so that anybody skilled in the art is enabled to reproduce the invention, the non-disclosure intention seems contradictory to patent law. This paper provides a model identifying the incentives for firms to deliberately obscure their inventive knowledge in a patent specification.