Sustainable Investments in Responsible SMEs: That’s What’s Distinguish Government VCs from Private VCs

Jeaneth Johansson,Joakim Wincent,Malin Malmström

doi:10.3390/jrfm14010025

Abstract

Researchers question the impact of governmental venture capitalists (GVC) compared to private venture capitalists (PVC), but we know little about why this difference occurs and if this criticism is justified. We observed a group of GVCs and developed a new model that describes the way that GVCs process signals pre- and post-decisions. Certain macro level factors severely undermine micro level performance, causing GVCs to financially underperform with respect to PVCs. This helped us to understand that GVCs do not make investment decisions in the same way as PVCs, and what undermines the performance of GVCs’ decision-making processes. The main goals of GVCs are to promote investments in responsible SMEs, mobilizing societal impact. We discuss that the criticism of GVC needs to be more nuanced, as they have a different role than PVC in the financial system as providers of sustainable investments in responsible SMEs.

Highlights

Our situation is different from private venture capitalists
We show how government venture capital (GVC) differ from private venture capital (PVC) in terms of their decision-making explained by their prominent role to act as sustainable investors in responsible small and medium-sized enterprises (SMEs)
Our findings indicate that the GVCs superficial micro routines shape the stability of the institutional macro foundations assuring for sustainable and responsible investments ( Bertoni and Tykvová 2015; Kovner and Lerner 2015) Further, our signaling process model shows that whereas GVCs at a micro level seek to survive as a macro level institution by avoiding criticism by politicians or the public, PVCs seek to survive as an institution by making high-financial performance investments

Summary

Introduction

Our situation is different from private venture capitalists. We must think about venture potential, but we need to manage a complex set of sustainability. (Quotation from study participant)Numerous entrepreneurial finance policy initiatives seek to foster technological leadership, employment, and future growth in the regional, national, and international financial markets. A prime example is the European Union, where the venture capital market plays a prominent role in fostering high-risk investments in small and medium-sized enterprises (SMEs) (Gompers and Lerner 2001; Mina et al 2020). Expressing an interest in private venture capital (PVC) whilst recognizing potential differences with government venture capital (GVC), researchers have recently begun to focus on better understanding the decision-making of these two groups of investors (Callagher et al 2015). Government financiers play a critical role in providing sustainable investments in terms of social payoffs and encouraging positive social impact that transcends the role of PVCs focused on financial maximizing efficiency and profit (Block et al 2018). GVCs bridge the financial gap for innovative SMEs investing in development of new products and services, often based on limited historical data and high uncertainty in future financial performance (Malmström et al 2015)

Methods

Results

Discussion

Conclusion