The Effects of Government‐Sponsored Venture Capital : International Evidence

This paper examines the impact of government‐sponsored venture capitalists (GVCs) on the success of client enterprises. Using international company‐level data, we identify a surprising non‐monotonicity in the effect of GVC on the likelihood of exit via initial public offerings (IPOs) or third party acquisitions. Companies that receive funding from both private venture capitalists (PVCs) and GVCs outperform a benchmark companies financed purely by private venture capitalists if only a moderate fraction of funding comes from GVCs, but significantly underperform if a large fraction of funding comes from GVCs. Using an instrumental variable approach, it appears that endogeneity due to unobservable selection effects may be present, but they cannot fully account for the main effects of GVC financing. Our results therefore suggest that GVC funding does influence enterprise performance. The analysis shows that companies funded by GVCs create more patents