The current financial crisis has shut off venture capitalists’ opportunities to cash in their investments by bringing their portfolio firms to public stock markets. As a consequence, they are currently hesitant to invest in young firms in the first place. However, taken together, the evidence supporting the positive impact of VC on innovation is weak at best. Some innovations, especially less profitable ones, may take more time to be commercialised, but innovation is likely to persist even during this downtime, thanks to scientific curiosity and enthusiasm.
I'm not sure I buy the methodology here. For example, I think the patent system is a sham, so I don't think it has any relationship with innovation.
Companies looking to get VC have a tendency to patent, because VC's think patents signify the realness of an entity they are buying into when the cashflow isn't there, but once the money is in, there is no longer a need for patents. Patents don't come up again until the startup gets sucked into a large entity that uses them as a way of extorting money from competitors.
These facts explain the results found by this study, but the study reaches the bizarre conclusion that the VC funds actually discouraged patent application and that the patents were a product of spontaneous creativity or something. The fact is that patents are filed because the VC wants to see them before they will invest. If you take VC away you'll get less total patents, because there will be no need to patent things. If patents are what you want, VC is a way to get them (although large commercial R&D is probably better). However, patents are not actually what you want. Patents are not innovation.
Real innovation involves bringing a product to market, not coming up with an idea on paper, failing to execute on it, and then suing the guy who did it right. Furthermore, patents do not protect real innovators from established interests while they are trying to bring their product to market. Its just the opposite. Patents are used by the big guys to stop innovation that threatens them. They come up with a bunch of potentially dangerous ideas, lock up patents up them, and then sue anyone who gets near them. Real innovators mostly can't afford patents -- not without capital investments that is. IE not without angels and VC.