Public grants beneficiaries and venture capital-backed firms: a tale of two funding strategies

Andrea Bellucci, Gianluca Gucciardi and Daniel Nepelski ()
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Andrea Bellucci: Università degli Studi dell’Insubria and MoFiR
Gianluca Gucciardi: Università degli Studi di Milano-Bicocca and MoFiR
Daniel Nepelski: European Commission, Joint Research Centre (JRC)

The Journal of Technology Transfer, 2025, vol. 50, issue 5, No 12, 2262-2305

Abstract: Abstract Although firm characteristics play a crucial role in predicting future performance, public agencies often overlook these factors in their funding decisions, unlike Venture Capital investors. This oversight may have implications for the pay-offs from publicly allocated funds and the achievement of policy objectives. To explore the role of firm characteristics in receiving public grants and Venture Capital funding, we compare the characteristics of beneficiaries of the SME Instrument—one of the most innovative funding instruments for innovative companies in Europe—with those of VC-backed firms. Our findings reveal different funding strategies: Venture Capitalists tend to fund younger and more innovative firms, while SME Instrument grants lean towards smaller and older companies. These trends persist even when considering factors such as bank indebtedness and profitability. Additionally, firms that are more profitable are more likely to secure public grants than VC-backed counterparts are. The difference in funding strategies may be related to the varying levels of risk tolerance of public agencies and Venture Capitalists, with the public agency potentially being more risk-averse than its private counterparts are. Our study underscores the potential need to refine the selection criteria of the public funding program to align it with the expected role of public funding in de-risking uncertain ventures in their early development phase.

Keywords: Venture Capital; Public grants; SME Instrument; Entrepreneurial finance; Finance for innovation (search for similar items in EconPapers)
JEL-codes: G20 L20 L53 O30 O38 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10961-024-10180-9

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