In this paper we evaluate whether government intervention through the public funding of business angel networks is warranted. Based on a regional study of four BANs, we find that these subsidies reach their goals in terms of contribution to economic development and reducing financing and information problems entrepreneurial companies face. However, they are partly based on the wrong assumptions as these companies are not (yet) value creating. Therefore, we advise caution in using the market failure argument as grounds for government intervention in the informal risk capital market.
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Find related papers by JEL classification: G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups R58 - Urban, Rural, and Regional Economics - - Regional Government Analysis - - - Regional Development Policy
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