Brander Egan Hellmann (2010) - Government Sponsored versus Private Venture Capital

Reference

Brander, James A., Edward J. Egan, and Thomas F. Hellmann (2010), "Government Sponsored versus Private Venture Capital: Canadian Evidence", in "International Differences In Entrepreneurship", J. Lerner and A. Schoar, National Bureau of Economic Research, Cambridge, MA.

@article{brander2010government,
  title={Government Sponsored versus Private Venture Capital: Canadian Evidence},
  author={Brander, James A. and Egan, Edward J. and Hellmann, Thomas F.},
  journal={"International Differences In Entrepreneurship", J. Lerner and A. Schoar, National Bureau of Economic Research, Cambridge, MA.},
  year={2010},
  publisher={National Bureau of Economic Research}
}

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Status

• This paper is published in an NBER book ("International Differences In Entrepreneurship", edited by J. Lerner and A. Schoar).
• This paper was presented at: The NBER pre-conference on International Differences in Entrepreneurship, Boston, Massachusetts (May ‘07)
• Google Scholar listed 22 cites as of Oct 2011.

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.