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Government as Venture Capitalists in Artificial Intelligence

Author

Listed:
  • Martin Beraja
  • Wenwei Peng
  • David Y. Yang
  • Noam Yuchtman

Abstract

Venture capital (VC) plays an important role in funding and shaping innovation outcomes, characterized by investors’ deep knowledge of the technology, industry, and institutions, as well as their long-running relationships with the entrepreneurship and innovation community. China, in its pursuit of global leadership in AI innovation and technology, has set up government VC funds so that both national and local governments act as venture capitalists. These government-led VC funds combine features of private VC with traditional government innovation policies. In this paper, we collect comprehensive data on China’s government and private VC funds. We draw three important contrasts between government and private VC funds: (i) government funds are spatially more dispersed than private funds; (ii) government funds invest in firms with weaker ex ante performance signals, but these firms exhibit growth rates exceeding those of firms in which private funds invest; and (iii) private VC funds follow government VC investments, especially when hometown government funds directly invest on firms with weaker ex ante performance signals. We interpret these patterns in light of VC funds’ traditional role overcoming information frictions and China’s unique institutional environment, which includes important frictions on mobility and information.

Suggested Citation

  • Martin Beraja & Wenwei Peng & David Y. Yang & Noam Yuchtman, 2025. "Government as Venture Capitalists in Artificial Intelligence," Entrepreneurship and Innovation Policy and the Economy, University of Chicago Press, vol. 4(1), pages 81-102.
    • Handle: RePEc:ucp:eipoec:doi:10.1086/732854
    DOI: 10.1086/732854
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    Cited by:

    1. is not listed on IDEAS
    2. Raffaele Gallo & Federico Maria Signoretti & Ilaria Supino & Enrico Sette & Paolo Cantatore & Marco Luigi Fabbri, 2025. "The Italian venture capital market," Questioni di Economia e Finanza (Occasional Papers) 919, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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