Government Sponsored versus Private Venture Capital: Canadian Evidence
AbstractThis paper investigates the relative performance of enterprises backed by government-sponsored venture capitalists and private venture capitalists. While previous studies focus mainly on investor returns, this paper focuses on a broader set of public policy objectives, including value-creation, innovation, and competition. A number of novel data-collection methods, including web-crawlers, are used to assemble a near-comprehensive data set of Canadian venture-capital backed enterprises. The results indicate that enterprises financed by government-sponsored venture capitalists underperform on a variety of criteria, including value-creation, as measured by the likelihood and size of IPOs and M&As, and innovation, as measured by patents. It is important to understand whether such underperformance arises from a selection effect in which private venture capitalists have a higher quality threshold for investment than subsidized venture capitalists, or whether it arises from a treatment effect in which subsidized venture capitalists crowd out private investment and, in addition, provide less effective mentoring and other value-added skills. We find suggestive evidence that crowding out and less effective treatment are problems associated with government-backed venture capital. While the data does not allow for a definitive welfare analysis, the results cast some doubt on the desirability of certain government interventions in the venture capital market.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14029.
Date of creation: May 2008
Date of revision:
Publication status: published as James A. Brander, Edward Egan, Thomas F. Hellmann. "Government Sponsored versus Private Venture Capital: Canadian Evidence," in Josh Lerner and Antoinette Schoar, editors, "International Differences in Entrepreneurship" University of Chicago Press (2010)
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Other versions of this item:
- James A. Brander & Edward Egan & Thomas F. Hellmann, 2010. "Government Sponsored versus Private Venture Capital: Canadian Evidence," NBER Chapters, in: International Differences in Entrepreneurship, pages 275-320 National Bureau of Economic Research, Inc.
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- H0 - Public Economics - - General
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-31 (All new papers)
- NEP-CFN-2008-05-31 (Corporate Finance)
- NEP-ENT-2008-05-31 (Entrepreneurship)
- NEP-INO-2008-05-31 (Innovation)
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