Wrong – trademarks show signaling and protection value but patents have a higher threshold and far more uncertainty for any value.

Most prior work on the role of IP in VC funding has focused on patents. Start-ups filing patents are more likely to receive VC funds (Audretsch et al., 2012; Cao and Hsu, 2011; Engel and Keilbach, 2007; Haeussler et al., 2009) and be valued more highly by VCs (Baum and Silverman, 2004; Hsu and Ziedonis, 2008; Lerner, 1994). Additionally, start-ups with patents demonstrate superior performance throughout the VC cycle compared with other start-ups, in terms of both their survival rate and the amount of funding that they receive (Cao and Hsu, 2011; Mann and Sager, 2007). From these studies, whether VCs value patents as a signal of the start-up's quality (the signaling value of patents) or as a property right (i.e., the right to exclude others from making, using, offering for sale, or selling the patent's underlying invention) (the protection value of patents) remains unclear. If patents have a signaling value, VCs would attribute higher quality to a start-up with patents because the quality of the start-up and its technology are unobservable. In a recent study, Hoenig and Henkel (2012) use a conjoint-based survey of 102 European VCs to disentangle these two effects and find that patents primarily affect VC decision making through their function as an exclusion right. In another study, Audretsch et al. (2012) find that VCs and business angels (BAs) only value patent applications as a quality signal if prototypes are also available. Audretsch et al. (2012) argue that the signaling value of patents is contingent on patent feasibility. Although the patent–VC interface has received considerable attention in the literature, little is known about the role of trademarks in VC funding. Only one study (De Vries et al., 2013) that we identified specifically addresses the relationship between VCs and trademarks, suggesting that VC investors promote trademarking when investing in a start-up. The paucity of research on trademarks in VC funding is surprising given the strong increase in trademark applications in recent years (OHIM, 2011; Sandner and Block, 2011; USPTO, 2012b).

A trademark is defined as “a distinctive sign, which identifies certain goods or services as those produced or provided by a specific person or enterprise” (World Intellectual Property Organization (WIPO), 2011). A trademark is typically a word, phrase, symbol, or logo, but it can also reflect a color, sound, or smell as long as a graphical representation is feasible (Mendonça et al., 2004). Trademarks allow consumers to distinguish a firm from its competitors. Additionally, trademarks provide a legal basis from which a firm can develop brand security for future marketing investments (Economides, 1988; Mendonça et al., 2004; Phillips, 2003). Similar to patents, trademarks provide exclusion rights that secure not only a competitive advantage but also the identity of the start-up in its relationship with its customers (Chasser and Wolfe, 2010; Mendonça et al., 2004). While patents relate to a start-up's technological base, trademarks reflect the start-up's preparedness, its plan to engage in marketing activities and its willingness to protect its marketing assets (Brahem et al., 2013; Krasnikov et al., 2009; Sandner and Block, 2011). Similar to patents, with regard to VC financing, trademarks may provide both signaling value and protection value for start-ups. That is, VCs may value trademarks as a signal of the quality of the start-up (signaling value) or as an intellectual property right to exclude rivals from using the start-up's signs, names, logos, and so forth (protection value).