Government sponsored versus private venture capital: Canadian evidence

Brander, James A., Egan, Edward and Hellmann, Thomas (2010) Government sponsored versus private venture capital: Canadian evidence. In: Lerner, Josh and Schoar, Antoinette, (eds.) International Differences in Entrepreneurship. NBER, pp. 275-320.

Abstract

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.

Item Type: Book Section
Keywords: venture capital, finance
Subject(s): Entrepreneurship
Finance
Centre: Entrepreneurship Centre
Related URLs:
Date Deposited: 14 Aug 2015 11:45
Last Modified: 23 Feb 2017 09:55
Funders: not applicable
URI: http://eureka.sbs.ox.ac.uk/id/eprint/5443

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