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Can venture capital foster innovation? A study of the coupling between innovation and finance

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  • Kevin Levillain

    (CGS i3 - Centre de Gestion Scientifique i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris sciences et lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique)

  • Blanche Segrestin

    (CGS i3 - Centre de Gestion Scientifique i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris sciences et lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique)

  • Armand Hatchuel

    (CGS i3 - Centre de Gestion Scientifique i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris sciences et lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique)

Abstract

Venture Capital is generally thought to be a key link in the complex chain of financing for young innovative firms. By helping them at critical stages of innovation development, it would help an economy to leverage its public research and sustain its growth. However, recent research reveals that the performance of VC funds, both internal (profitability) and external (growth), does not reach the expectations. In this paper, we aim to show that paradoxically, the theoretical model of VC conveyed by the literature does not take the management of innovation into account, and makes unrealistic assumptions on the composition of project portfolios. Conversely, based on interviews with some VC funds managers, we show that actual funds can invent alternative management models, for example based on the structuration of ecosystems for the start-ups, the development of "external valuation" mechanisms, or the creation of synergies between financed projects.

Suggested Citation

  • Kevin Levillain & Blanche Segrestin & Armand Hatchuel, 2014. "Can venture capital foster innovation? A study of the coupling between innovation and finance," Post-Print hal-00969096, HAL.
    • Handle: RePEc:hal:journl:hal-00969096
    Note: View the original document on HAL open archive server: https://minesparis-psl.hal.science/hal-00969096
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    References listed on IDEAS

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    1. Florida, Richard L. & Kenney, Martin, 1988. "Venture capital-financed innovation and technological change in the USA," Research Policy, Elsevier, vol. 17(3), pages 119-137, June.
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    5. Mason, Colin M. & Harrison, Richard T., 2002. "Is it worth it? The rates of return from informal venture capital investments," Journal of Business Venturing, Elsevier, vol. 17(3), pages 211-236, May.
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    7. Murray, Gordon C. & Marriott, Richard, 1998. "Why has the investment performance of technology-specialist, European venture capital funds been so poor?," Research Policy, Elsevier, vol. 27(9), pages 947-976, December.
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