The role of venture capital in alleviating financial constraints of innovative firms

Venture capital is considered to be the most appropriate form of financing for innovative firms in high-tech sectors. We provide an assessment of venture capital looking at the involvement of venture capital with some of Europe's most innovative and successful companies: those listed on Europe's 'new' stock markets. Venture capital is effective in helping these firms overcome credit constraints but has a limited effect on their ability to grow and create jobs. This result clashes with the evidence on the role of VC for US companies. Yet, VC is not only about money but also about steering and supporting portfolio companies, activities which depend on venture capitalists' educational and organizational background as well as on the legal and cultural environment in which they operate.