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Venture capital and innovation at the firm level

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  • Pere Arqué Castells

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    (Universitat de Barcelona & IEB)

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    Abstract

    This paper studies the relationship between venture capital (VC) and innovation using a self-collected dataset containing 119 innovative, VC-funded firms and 164,486 controls that operate in Spain. Probit model estimates indicate that firms that have applied for at least one patent are significantly more likely to obtain VC investments. However, when implementing a matching approach to correct for selectivity, no evidence is found of a significant impact of VC on firms’ patenting activity. Rather, evidence is found of a positive effect of VC on the sales growth of funded firms. These results suggest that, rather than having an impact on innovation activities, venture capitalists (VCs) focus on the commercialization of existing products. A finer breakdown by ownership and investment stage also provides evidence that private VCs and early stage investments are notably more effective at stimulating sales than public VCs and late stage investments respectively.

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    Bibliographic Info

    Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2010/12.

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    Length: 40 pages
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:ieb:wpaper:2010/4/doc2010-12

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    Related research

    Keywords: Venture capital; innovation; patents; matching estimator;

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    References

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    1. Laura Bottazzi & Marco Da Rin, 2002. "Venture capital in Europe and the financing of innovative companies," Economic Policy, CEPR & CES & MSH, vol. 17(34), pages 229-270, 04.
    2. Keilbach, Max & Engel, Dirk, 2002. "Firm Level Implications of Early Stage Venture Capital Investment: An Empirical Investigation," ZEW Discussion Papers 02-82, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Dirk Engel, 2004. "The Performance of Venture-Backed Firms: The Effect of Venture Capital Company Characteristics," Industry and Innovation, Taylor & Francis Journals, vol. 11(3), pages 249-263.
    4. Haeussler, Caroline & Harhoff, Dietmar & Müller, Elisabeth, 2009. "To Be Financed or Not... - The Role of Patents for Venture Capital Financing," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 253, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    5. Alberto Abadie & Guido W. Imbens, 2006. "Large Sample Properties of Matching Estimators for Average Treatment Effects," Econometrica, Econometric Society, vol. 74(1), pages 235-267, 01.
    6. Hall, Bronwyn H. & Lerner, Josh, 2010. "The Financing of R&D and Innovation," MERIT Working Papers 012, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
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