When are applied patents more valuable than granted patents?
Building on the real options logic, we posit that applied patents play a greater role than granted patents in enabling technology ventures to raise capital in initial public offerings (IPOs). Compared with a venture’s granted patents, its applied patents have more call options (e.g., broader protection claims, higher flexibility in resource commitments, and longer exercise time), and thus are more valuable according to the real options logic. We suggest that younger ventures are better able to identify and create value from the options in their applied patents, given their entrepreneurial abilities. We also argue that ventures with more advanced milestones in product development are better able to capture value from the options in their applied patents, given their commercialization capabilities. We analyze data from 251 biotechnology ventures undertaking IPOs in the U.S. during 2004-2015, and find overall evidence for these hypotheses. This study contributes to management and innovation research by theoretically and empirically examining the distinctive roles of applied patents and granted patents in influencing IPO proceeds.