Government as venture capitalists in artificial intelligence

Martin Beraja, Wenwei Peng, David Y. Yang and Noam Yuchtman

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Venture capital 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 venture capital funds so that both national and local governments act as venture capitalists. These government-led venture capital funds combine features of private venture capital with traditional government innovation policies. In this paper, we collect comprehensive data on China’s government and private venture capital 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.

Keywords: venture capital; artificial intelligence; innovation policy (search for similar items in EconPapers)
JEL-codes: G24 G28 O38 (search for similar items in EconPapers)
Date: 2025-02-28
New Economics Papers: this item is included in nep-mac and nep-sbm
References: Add references at CitEc
Citations:

Published in Entrepreneurship and Innovation Policy and the Economy, 28, February, 2025, 4. ISSN: 2771-1668

Downloads: (external link)
https://researchonline.lse.ac.uk/id/eprint/124143/ Open access version. (application/pdf)

Related works:
Journal Article: Government as Venture Capitalists in Artificial Intelligence (2025)
Chapter: Government as Venture Capitalists in Artificial Intelligence (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:124143

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().