Government Sponsored versus Private Venture Capital: Canadian Evidence / James A. Brander, Edward Egan , Thomas F. Hellmann.

Format:

Book

Author/Creator:

Brander, James A.

Contributor:

National Bureau of Economic Research.

Egan, Edward.

Hellmann, Thomas F.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14029.

NBER working paper series no. w14029

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Government Sponsored versus Private Venture Capital

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

This 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.

Notes:

Print version record

May 2008.