Government Sponsored versus Private Venture Capital: Canadian Evidence
Edward Egan and
Thomas Hellmann ()
No 14029, NBER Working Papers from National Bureau of Economic Research, Inc
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.
JEL-codes: G24 H0 O3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-ent and nep-ino
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Published as Government Sponsored versus Private Venture Capital: Canadian Evidence , James A. Brander, Edward Egan, Thomas F. Hellmann. in International Differences in Entrepreneurship , Lerner and Schoar. 2010
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Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:14029
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