Intangible but Bankable

Innovation and Economic Growth, Patents and Intellectual Property

Article Snapshot


Yael Hochberg, Carlos J. Serrano and Rosemarie Ziedonis


Science, Vol. 348, No. 6240, p. 1202, 2015


Intangible assets like patents are hard for investors to evaluate. But startups developing medical devices, semiconductors, and software had have surprising success obtaining venture capital loans secured by intangible assets like patents.

Policy Relevance

Developing markets in which patents can easily be bought and sold will help innovative startups.

Main Points

  • Many new firms lack physical assets or cash flows, but are rich in intangible assets like patents; however, intangible assets are hard to evaluate or sell, and banking regulations make it difficult for traditional lenders to lend to firms with such assets.
  • Surprisingly, innovative startups in three sectors often succeed in obtaining loans from venture lenders based on patents; these sectors are medical devices, semiconductors, and software.
  • Venture lenders and venture capital investors work together in the early stages of a startups development; venture lenders supplied startups with about $5 billion in capital annually.
  • Lenders carefully evaluate the startup’s solvency and reputation, and require a lien on the startup’s assets; liens on patents are recorded by the Patent and Trademark Office.
  • 35% of venture capital backed startups received venture loans; lenders favored startups with the most “saleable” patents.
  • In 2000, after the NASDAQ crashed, lenders continued to finance startups backed by the investors with plentiful capital, but withdrew from ventures most in need of cash; venture capitalists play a key intermediary role.
  • Attempt to encourage innovation by make it easier to lend money will be more likely to succeed if markets for trading patents are well developed, and if policies support equity investors.


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