Venture capital as a catalyst for commercialization and high growth

Abstract

We use Canadian data linking information on venture capital (VC) financing with firm-level administrative data to compare performance of VC-backed and non-VC-backed firms. The richness of the data allows us to incorporate a wide range of firm-level information into creating a control group based on propensity-score matching. In particular, we use typical covariates reflecting firm performance and characteristics (e.g., size, age, industry, location) as well as measures of firm-level innovation such as research and development (R&D) expenditures that are often thought to be associated with the potential for high growth and the probability of receiving VC financing. Our results show R&D expenditures not only attract VC, but are also increased more intensely for VC-backed firms than non-VC-backed counterparts over the short-run. Further, we show VC-backed firms enjoy greater growth in wages and scale over the 5-year period. Overall, our results provide empirical evidence that VC financing is associated with the acceleration of the innovation and commercialization process accompanied by greater growth in wages and scale.