Venture capital financing and the growth of high-tech start-ups: Disentangling treatment from selection effects

Fabio Bertoni, Massimo G. Colombo and Luca Grilli

Research Policy, 2011, vol. 40, issue 7, 1028-1043

Abstract: The financial and innovation literature generally claims that venture capital (VC) investments spur the growth of new technology-based firms (NTBFs). However, it has proved difficult so far to separate the "treatment" effect of the VC investment from the "selection" effect attributable to the ability of the VC investor to screen high growth NTBFs. The aim of this work is to test whether VC investments have a positive treatment effect on the growth of employment and sales of NTBFs. For this purpose we consider a 10-year longitudinal data set for 538 Italian NTBFs, most of which are privately held. The sample includes both VC-backed and non-VC-backed firms. We estimate Gibrat-law-type dynamic panel-data models augmented with time-varying variables that capture the VC status of firms. To control for the endogeneity of VC investments we use several GMM estimators. The econometric results strongly support the view that VC investments positively influence firm growth. The treatment effect of VC investments is of large economic magnitude, especially on growth of employment. Most of it is obtained immediately after the first round of VC finance. Conversely, the selection effect of VC appears to be negligible in the Italian context.

Keywords: Venture; capital; High-tech; start-ups; Firm; growth; Sorting; and; treatment; effects (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (146)

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Working Paper: Venture capital financing and the growth of high-tech start-ups: Disentangling treatment from selection effects (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:40:y:2011:i:7:p:1028-1043

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