Budget constraints mean the AFF trades off with small firms.

Second, the adverse effects of review delays for startups should help inform reform proposals targeted at accelerating the review process at the patent office. The USPTO has historically faced budgetary constraints that limit its ability to allocate more resources to patent reviews. The constraints force the agency to make choices among various priorities, including speeding up reviews and improving review quality (Hegde 2012). Our findings suggest that the benefits of speeding up reviews can be immediate and substantial, particularly for small inventors whom the patent system is intended to protect.

The modern patent system is complex. In theory, it delivers private benefits and costs to patentees but also generates positive and negative spillovers through many distinct channels, thus making it impossible for any single empirical study to definitively establish the overall welfare consequences of the patent system. Despite the abundance of evidence highlighting the spillover effects of patent rights (e.g., Grilliches 1984; Jaffe 1986; Heller and Eisenberg 1998; Moser 2005; Williams 2013; Galasso and Schankerman 2015; Sampat and Williams 2015), empirical evidence of the direct private benefits of patents to their owners remains scarce.

Our study helps fill this gap by providing the first causal evidence of the direct benefits of patent rights in a large sample of startups. We find that patents offer a substantial bright side to entrepreneurs and small inventors, especially if processed in a timely manner. In particular, patents appear to play an important role in reducing uncertainty and alleviating information asymmetries in the market for entrepreneurial capital. Reforms of the patent system that do not take this role of patents into account run the risk of negatively impacting the availability of capital for innovative startups.