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Venture Capital Principles in the European ICT Ecosystem: How can they help ICT innovation?

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Abstract

This report looks at venture capital (VC) funds, their characteristics, and functioning. It specifically focuses on the relationship between VCs and innovation, investigating whether VC funds encourage innovative companies to innovate or whether they successfully predict which companies will innovate more. The report also focuses on the selection process at micro-level. VC funds invest in young and innovative companies and decide where to invest based on imperfect information and signals. The ICT industry has a number of young innovative companies and unsurprisingly VC funds have concentrated their efforts on the ICT industry. In 2013, about 25% of invested funds went into ICT companies even though ICT companies represent less than 6% of all companies. The report then steps back to look at the macro-level. Once they have invested, VC funds use stage financing, monitoring, and exit incentives to re-align their incentives with those of the company receiving the funds. Since they rely on monitoring, VC funds usually prefer to invest in local companies that they can visit regularly. This issue of local investment is seen as a hindrance and EU policymakers have tried to remedy it passing a regulation to facilitate the cross-border funding. The EU has also partly funded the European Investment Fund to further encourage investment and cross-border investment.

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  • Garry A. Gabison, 2015. "Venture Capital Principles in the European ICT Ecosystem: How can they help ICT innovation?," JRC Research Reports JRC98783, Joint Research Centre.
    • Handle: RePEc:ipt:iptwpa:jrc98783
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    1. Daniel Nepelski & Marc Bogdanowicz & Federico Biagi & Paul Desruelle & Giuditta De Prato & Garry Gabison & Giuseppe Piroli & Annarosa Pesole & Nikolaus Thumm & Vincent Van Roy, 2017. "7 ways to boost digital innovation and entrepreneurship in Europe. Key messages from the European innovation policies for the digital shift project," JRC Research Reports JRC104899, Joint Research Centre.
    2. Pradhan, Rudra P. & Arvin, Mak B. & Nair, Mahendhiran & Bennett, Sara E. & Bahmani, Sahar, 2019. "Short-term and long-term dynamics of venture capital and economic growth in a digital economy: A study of European countries," Technology in Society, Elsevier, vol. 57(C), pages 125-134.
    3. Daniel Nepelski & Giuseppe Piroli & Giuditta De Prato, 2016. "European Start-up Hotspots: An Analysis based on VC-backed Companies," JRC Research Reports JRC101215, Joint Research Centre.
    4. Andrea Renda, 2016. "Selecting and Designing European ICT Innovation Policies," JRC Research Reports JRC103661, Joint Research Centre.

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    Keywords

    venture capital fund; innovation; ICT;
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