2] VC investment – trademarks present credible signs for investors that are more reliable than anything else – that’s critical for success.

Our findings contribute to research on the role of entrepreneurial marketing and IP assets in VC valuation (Baum and Silverman, 2004; Douglas and Shepherd, 2002; Gruber, 2004; Haeussler et al., 2009; Hellman and Puri, 2000, 2002; Hills, 1984; Hisrich, 1989; Hsu and Ziedonis, 2008; Miloud et al., 2012; Wortman et al., 1989) and research on the value of trademarks (Greenhalgh and Rogers, 2006a,b; Sandner and Block, 2011) in at least four ways.

First, we contribute to the literature on the role of IP in VC financing by showing that the number and breadth of trademark applications in start-ups are positively related to VC valuation. Previous studies on VC valuation provide evidence for the criteria by which VCs evaluate start-ups, such as the quality of the start-up's business plan, venture team, patents, and network as well as alliance capital (e.g., Baum and Silverman, 2004; Franke et al., 2006; Haeussler et al., 2009; Hall and Hofer, 1993; Hsu and Ziedonis, 2008; Macmillan et al., 1985). Our finding extends this literature by demonstrating the impact of trademark activity on VC valuation. This finding also supports and adds to the research on the value of trademarks. Sandner and Block (2011) and Greenhalgh and Rogers (2006a,b) demonstrate that trademarks have a positive effect on the market valuations of large publicly listed technology firms. Our study shows that trademarks are associated with not only the market valuations of large firms but also VCs' financial valuations of start-ups. Furthermore, our findings on the effects of trademarks add to the research on entrepreneurial marketing and its effect on VC evaluations. The literature has repeatedly highlighted the relevance of the market orientations of start-ups for VC financing and valuation decisions. Both Hisrich (1989) and Wortman et al. (1989) note that VCs consistently rate marketing management as an important success factor. Failure rates of start-ups could be greatly reduced through improved analysis of the target market (see also Hills and LaForge, 1992; Hills et al., 2008). More recent research on this topic analyzes the marketing readiness of start-ups as one of the primary dimensions on which VCs base their investment decisions (Douglas and Shepherd, 2002). VCs are more willing to finance start-ups with high marketing readiness because they appear to be more credible and ‘investor ready’ (Wright et al., 2004). Whereas these arguments already indicated the importance of market orientation for VC financing, to the best of our knowledge, we are the first to show that a start-up's advancement in marketing activities as reflected by its trademark activity is a relevant characteristic that is valued by VCs.

Documenting the link between marketing efforts and start-up valuation contributes to not only the entrepreneurial marketing research but also research on the marketing–finance interface in general. There is already an established strand of research on the marketing–finance interface that provides empirical evidence for the link between investment decisions and a broad range of marketing assets and actions (for an overview, see, e.g., Srinivasan and Hanssens, 2009). Previous research has demonstrated that investing in building marketing assets, such as brand equity (e.g., Joshi and Hanssens, 2010; Mizik and Jacobson, 2007), customer satisfaction (e.g., Fornell et al., 2006; Luo and Bhattacharya, 2006), customer metrics (e.g., customer lifetime value) (e.g., Gupta et al., 2004), or product quality (e.g., Li et al., 2009; Tellis and Johnson, 2007) has a positive effect on investor responses. However, most previous studies focus on established and publicly traded firms and link these metrics to changes in stock returns (Srinivasan and Hanssens, 2009). Our findings extend this research and show that marketing investments are also crucial for the VC valuation of start-ups. We also find that the effect of the number of trademark applications is greater than the effect of patent applications. An explanation for the stronger effect of trademarks might be that, for start-ups, trademark application data are more reliable indicators than patent applications. Patents primarily affect VC decisions via their function as an exclusion right (Hoenig and Henkel, 2012). However, in the application stage, a patent does not yet have this exclusion right. It is unclear whether and when a patent application will eventually lead to a granted patent. Trademark applications have a higher success rate than patent applications (OHIM, 2011; USPTO, 2012b) and thus constitute reliable signals for market and growth orientation, especially for start-ups. Moreover, they represent exclusion rights that have ultimate and direct applicability and validity.