Bridging the equity gap for young innovative companies: The design of effective government venture capital fund programs

Abstract

Governmental venture capital funds (GVCs) are created by policymakers around the world to support young innovative companies (YICs) with the aim of “bridging the equity gap”. In this paper, we study the heterogeneity in the design of GVC programs in Europe and identify the design features that are most effective in achieving the desired outcomes of this policy. Specifically, we focus on the probability that GVC-backed companies will receive additional funds from private venture capital investors and, ultimately, changes in their growth and innovation outcomes. We find that the choices of location, colocation, syndication and industry focus of a GVC program substantially influence the extent to which it is able to achieve such goals. Important policy implications are discussed.

Keywords: Governmental Venture Capital, Equity Gap, Experience, Regional Characteristics, Regulatory Capture

JEL Classification: G24, G38