This paper uses a continuoustime realoptions methodology to develop duopoly patentrace model to study financial properties of venturecapital backed startups. Numerical analysis shows that patent races, compared with a joint monopoly, drive a firm to invest more aggressively, which thus causes value dissipation, a higher CAPM beta, a higher return volatility and more negative return correlation when firms intensively compete with others. This high level of return volatility is attributed largely to technological risks and is consistent with empirical findings. Herein, we provide the theoretical support for construction strategy of VCs’ firm portfolio from industrial organization perspective.