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Government Sponsored Venture Capital: Blessing Or Curse?

Author

Listed:
  • Erika Jaki

    (Corvinus University of Budapest, Hungary)

  • Endre Mihaly Molnar

    (Corvinus University of Budapest, Hungary)

  • Walter György

    (Corvinus University of Budapest, Hungary)

Abstract

Young companies with growth opportunities face serious problems when it comes to financing. The private venture capital (VC) market fails to provide sufficient funding for this segment. First, we present the main characteristics of start-up companies and market failures that can lead to government intervention. These failures include asymmetric information embodied in the business plan; high transaction costs of the investment process from the investment decision to the exit; and positive externalities in the economy, as the government prefers other goals than profit realization. Government participation is categorized as direct or indirect intervention. We present international studies showing that indirect government intervention can have both beneficial and negative effects on the vc market. Finally, the Hungarian government’s participation and intervention are evaluated on the domestic VC market.

Suggested Citation

  • Erika Jaki & Endre Mihaly Molnar & Walter György, 2017. "Government Sponsored Venture Capital: Blessing Or Curse?," Management, University of Primorska, Faculty of Management Koper, vol. 12(4), pages 317-331.
    • Handle: RePEc:mgt:youmng:v:12:y:2017:i:4:p:317-331
    DOI: 10.26493/1854-4231.12.317-331
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    References listed on IDEAS

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    1. Cumming, Douglas J. & MacIntosh, Jeffrey G., 2006. "Crowding out private equity: Canadian evidence," Journal of Business Venturing, Elsevier, vol. 21(5), pages 569-609, September.
    2. David Kirsch & Brent Goldfarb & Azi Gera, 2009. "Form or substance: the role of business plans in venture capital decision making," Strategic Management Journal, Wiley Blackwell, vol. 30(5), pages 487-515, May.
    3. Cumming, Douglas J. & Johan, Sofia A., 2013. "Venture Capital and Private Equity Contracting," Elsevier Monographs, Elsevier, edition 2, number 9780124095373.
    4. Massimo Colombo & Douglas Cumming & Silvio Vismara, 2016. "Governmental venture capital for innovative young firms," The Journal of Technology Transfer, Springer, vol. 41(1), pages 10-24, February.
    5. Terttu Luukkonen & Matthias Deschryvere & Fabio Bertoni, 2013. "The value added by government venture capital funds compared with independent venture capital funds," Post-Print hal-02312981, HAL.
    6. Bernardo Balboni & Guido Bortoluzzi & Moreno Tivan & Andrea Tracogna & Francesco Venier, 2014. "The Growth Drivers of Start-up Firms and Business Modelling: A First Step toward a Desirable Convergence," Management, University of Primorska, Faculty of Management Koper, vol. 9(2), pages 131-154.
    7. Becsky-Nagy, Patrícia & Fazekas, Balázs, 2015. "Investment or Learning Curve? – The effects of EU and government funds on the development of the Hungarian venture capital market," Public Finance Quarterly, Corvinus University of Budapest, vol. 60(2), pages 238-248.
    8. Lerner, Josh, 1999. "The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program," The Journal of Business, University of Chicago Press, vol. 72(3), pages 285-318, July.
    9. Jaaskelainen, Mikko & Maula, Markku & Murray, Gordon, 2007. "Profit distribution and compensation structures in publicly and privately funded hybrid venture capital funds," Research Policy, Elsevier, vol. 36(7), pages 913-929, September.
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    Cited by:

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