Government Venture Research Articles

Firm selection for government venture capital funding to youth tech-based startups

PurposeThe purpose of the study is to review and understand firm selection mechanism involved in government venture capital (GVC) funding and identify key factors influencing selection of tech-based firms for GVC funding.Design/methodology/approachThis paper is based on real-time methodology. The data was generated from interviews of 60 young applicants, who applied for startup funding, and analyzed using statistical techniques to draw the results.FindingsThis review identifies financial viability, market viability and technological innovation to have the strongest predictive ability in firm selection process of the GVC funding program for tech-based youth-owned startups in the first round of interview. This review also highlighted that social impact is not a statistically significant variable in firm selection process in GVC funding.Originality/valueThis study tests the validity of the theory of GVC based on quantitative analysis of field data and identifies key factors with strong predictive abilities for GVC funding, more particularly for the youth-owned tech-based startups. This study brings to light the mechanism adopted for GVC funding and addresses gaps in the literature relevant to firm selection mechanism in GVC programs. This study would help GVC Fund Managers to review their own GVC programs in terms of selection mechanism and help them in appropriate designing of such programs.

Governmental venture capital – A social capital and principal-agent related examination for Belgium, The Netherlands, Luxembourg, Austria and Germany

Governmental venture capital – A social capital and principal-agent related examination for Belgium, The Netherlands, Luxembourg, Austria and Germany

The Role of Governmental Venture Capital in Value Creation for Investee Firms: Evidence from Chinese Government Guidance Funds

The Role of Governmental Venture Capital in Value Creation for Investee Firms: Evidence from Chinese Government Guidance Funds

Spatial Impact of Government Venture Capital on Urbanization and Its Path—Evidence from the Yangtze River Delta Urban Agglomeration in China

Despite being the world’s largest developing country and experiencing rapid economic growth, China’s urbanization process lags behind the global standard. The comprehensive promotion of urbanization development is a critical issue for the Chinese government, with government venture capital playing a significant role in promoting regional economic development. Using urbanization dimension levels extracted through factor analysis, this study analyzes the impact of government venture capital on the urbanization development of the Yangtze River Delta region of China and explores its path to determine its spatial spillover effect on surrounding areas. The results show that government venture capital funds can significantly promote urbanization development in this region, primarily by influencing the residents’ standard of living and urban construction levels. In addition, the spatial spillover effect of urbanization can be realized through the promotion of the urban construction level and the ecological health level of surrounding areas. While previous literature has examined government venture capital from multiple perspectives and dimensions, few scholars have investigated the impact of government venture capital on the critical issue of urbanization development. This study fills that research gap and serves as a reference for the Chinese government to promote high−quality urbanization development.

Funding Options for Agricultural Start-Ups in India- Challenges and Opportunities

Startup India is a flagship initiative of the Government of India aimed at fostering innovation and building startups. In order to promote entrepreneurship, economic growth, and employment in India through this initiative, the Government intends to empower startup ventures. Global attention has been drawn to India's startup ecosystem. Innovation and scalable technology can enable start-ups to generate impactful solutions. Consequently, they serve as vehicles for economic and social development and transformation. Over the past two decades, the Indian start-up ecosystem has undergone a rapid evolution. In recent years, the business world has witnessed an explosion of ground-breaking start-ups providing solutions to the real problems at a mass level thanks to hundreds of innovative youngsters choosing to pursue entrepreneurship instead of joining multinational corporations and government ventures. Over the past decade, the Government of India has introduced a number of schemes aimed at promoting entrepreneurship and growing the economy. These programs have helped a large number of start-ups succeed. As a result of these schemes, the country will move forward and secure the strongest position in the world economy. At different stages of a start-up's development, there are different funding options. The Indian government implements numerous schemes to promote start-ups through a variety of funding options that are easily accessible to budding and existing entrepreneurs. It is encouraging to see India as a country with many opportunities, particularly in the agriculture sector, which lends itself to the development of start-ups and employment creation. A few challenges, funding options and opportunities that Indian start-ups have to face in our current eco-system are discussed in this paper.

The Impact of Institutional Logic: Intensified Significance of Technology Independence and VC firms

Before evaluating the performance of government venture capital firms, we need to understand how their behaviors are different from private venture capital firms and why. Based on institutional logic perspective, government venture capital firms’ behavior would be deviant from private ones because of the additional state logic they embody. Leveraging the ZTE crisis, an exogenous event that strengthened the state’s pursuit of technology independence, we compare how government and private venture capital firms’ tendency to invest in high-tech high-trade startups is changed. Using 18,164 investment events in mainland China, we found that government venture capital firms significantly increased their investment in high-tech high-trade startups after the ZTE crisis. In contrast, private venture capital firms present no significant change. However, as related experience and same province condition positively moderate the impact for private venture capital firms, they can hardly moderate the impact for government venture capital firms. Focusing on how organizations cope with dynamic tensions, we extend institutional logic studies by demonstrating that hindrance comes from contesting logic and other goals of the same logic. As these two sources hinder in different ways, we emphasize the role of audiences in how logic works.

Does venture capital investment enhance corporate innovation? Evidence from Korea

AbstractWe examine whether venture capital (VC) investment enhances corporate innovation in Korea. Using a matched sample of 802 firms from 1998 to 2012, we find that after the first round of VC investment, VC‐backed firms are more innovative than non‐VC‐backed firms. Our results suggest that the positive influence of VC investment largely comes from the ability of VC firms to reduce information asymmetry between investors and ventures: VC funds managed by independent venture capitalists significantly enhance corporate innovation, whereas those managed by governmental venture capitalists do not. Furthermore, this positive influence becomes more pronounced where there is greater information asymmetry. Finally, we show that funds with profit‐based compensation structures are more likely to encourage corporate innovation than those with fee‐based compensation structures.

Can government venture capital guidance funds promote urban innovation? Evidence from China

AbstractDue to externalities and market failure, innovation activities are facing insufficient investment. Venture capital guidance funds (VCGFs) are an important policy implemented by China's government to guide private capital to participate in innovation and entrepreneurship activities, and it can have an important impact on scientific and technological innovation. Based on the panel data of 285 cities in China, this paper empirically analyzed the impact of VCGFs on innovation and its mechanism. VCGFs can significantly promote urban innovation and this role is sustained for three years following VCGF establishment. Further research shows that VCGFs do not have a direct impact on innovation but promote innovation by promoting the accumulation of innovative talent and capital, and the capital accumulation effect of VCGFs is the main path through which they promote urban innovation. Corruption is also a factor that restricts the effectiveness of an innovation policy. Thus, China's top‐down anticorruption campaigns can strengthen the ability of VCGFs to promote urban innovation. This paper opens the black box to show the mechanism through which VCGFs impact urban innovation, affirms the important role of the government in the regional innovation system, and clarifies the debate on government innovation policy.

Retrospective overview of the journal venture capital using bibliometric approach

ABSTRACT The journal Venture Capital (VC) is a well-established highly reputed academic outlet specializing in research on entrepreneurial finance conducted from various methodological standpoints, on a global basis. This study uses bibliometrics to analyze the journal’s impact, prominent topics, most frequent authors, and their affiliated institutions. Between 1999 and 2021, VC published 385 documents receiving 9,892 citations. About 62% of VC papers have more than 10 citations each. Some of the notable themes which may offer future scope for publications include crowdfunding platforms, equity crowdfunding, government venture capital, private equity firm and investment, entrepreneurial finance, market failure, and female entrepreneurship.

Do networks matter Social capital and public investors - the Austrian perspective

The underlying study was concerned with governmental venture capital which is grounded in the assumption of market failure and financing gaps for technological start-ups (Güllmann, 2000; Brettel, 2005). The aim of the study was to examine the venture capital market in Austria at the macro and the micro level. First hand collected survey data and secondary data sources were analysed by means of descriptive statistics in order to examine the effectiveness of the public involvement and the public investors' network, syndication rationales and mentoring procedures. The results revealed financing constraints in the later stages of the Austrian venture capital market again (Gassler et al., 2018; Friedl et al., 2019) and also showed that the public investors maintained comprehensive and diverse networks. Therefore, they should also play a pivotal role for the support of regional innovation ecosystems (Pierrakis and Saridakis, 2019) and not for the provision of financings alone.

A Dynamic Model of Governmental Venture Capital

A Dynamic Model of Governmental Venture Capital

Coming to Rescue or Going to Waste? Government Venture Capital in the U.S.-China Trade War

Coming to Rescue or Going to Waste? Government Venture Capital in the U.S.-China Trade War

Government as an Equity Investor: Evidence from Chinese Government Venture Capital through Cycles

Government as an Equity Investor: Evidence from Chinese Government Venture Capital through Cycles

Venture capital and government involvement from a qualitative systematic literature review perspective

Abstract The financing of young start-up companies is hindered by market failures that prompt governments around the world to intervene at the venture capital market. The aim of this paper is to give a comprehensive overview on this research field based on sound systematic literature review methodology, which was never done before. We found three major themes: pure governmental venture capital involvement, governmental-private venture capital cooperation, and governmental involvement in the financing of pre-seed startups. The evaluation of the governmental efforts varies according to these themes and also the investigated geographic location. Generally, pure governmental venture capital is the most controversial theme, the government-private cooperation is mostly viewed in a positive light, while the authors almost unanimously praise the government’s efforts when financing pre-seed startups. We found that the success of governmental venture capital should not be judged based on the realized return of its investments, since profit maximalization is not its goal. The governments try to alleviate market failures at the venture capital market and transition financed startup companies to private financing. Thus, we advise researchers to use the number of this type of successful transitions as the success criteria of governmental investments.

Modelling Investment Choice Preference of Government Venture Capital Guiding Funds

The continuous development of the government venture capital guiding funds (hereinafter referred to as the “government guiding funds”) has provided financial support and development opportunities for the development of many small- and medium-sized enterprises (SMEs), and government guiding funds have been paid attention by more and more entrepreneurs and investors of SMEs. This paper takes the SMEs listed on the National Equities Exchange and Quotations (“NEEQ,” known as the New Third Board) as a research sample, systematically examines the factors that influence the selection of investment objects of government guiding funds, and studies the preference of government guiding funds from the aspects of financial characteristics and corporate governance of SMEs. The research results show that on one hand, ownership concentration, date of establishment, and asset size are significantly related to government guiding funds, while the return on equity (ROE), the asset-liability ratio, liquidity of assets, growth rate of main business income, and the operating net profit ratio failed to pass the significance test; on the other hand, operating profit ratio, investment interests, asset size, and the amount of investment of government guiding funds are significantly related, while investment rounds, date of establishment, ownership concentration, ROE, asset-liability ratio, liquidity of assets, and operating net profit ratio failed the significance test.

Determinants of Investment Timing of Government Venture Capital Guiding Funds in China

With the prosperity of venture capital, all kinds of government venture capital guiding funds have sprung up, and the scale is explosive growth. However, the current investment of government guiding funds in enterprises has not fundamentally solved the financial difficulties in the early development of enterprises. This study examines the determinants of investment timing of government guiding funds. We investigate this question using the data of China’s new three board companies that have been invested by government guiding funds in the year of 2015-2016. We find that government guiding funds enter the enterprises into developed areas earlier. The innovation ability and the market competitiveness of the invested enterprises are positively correlated with the investment timing of government guiding funds. There is no significant relationship between the investment proportion of government guiding funds and the timing of entering the enterprises. The research of this paper can provide theoretical reference for the subsequent optimization of the resource allocation and provide ideas and methods for the policy improvement and management optimization of government venture capital guiding funds in the future.

Did Government Venture Capital Fund Innovative but Less Profitable companies? Evidence from China

Governmental venture capital (GVC) is a typical dual-purpose hybrid entity, which aims to increase social welfares as well as making profits for investors. Yet little is known about how the dual purposes shape GVC’s investment strategies that interact with private venture capital’s (PVC). Applying a two-sided matching model, we develop a structural model to examine whether GVCs invested in innovative but less profitable companies that ignored by PVCs. Using the data of Chinese VC industry in 2000-2012, we find supports for our hypotheses. These fresh results suggest that GVC commendably fulfill their social mission while pursuing economic benefits in a competitive environment. Moreover, GVCs are at least not worse than PVCs in nurturing companies in term of achieving IPO/M&A, and they support company innovation effectively in term of patent application.

The Willingness of PVCs to Invest GVCs Backed Ventures: The Role of Institutional Logics

It is important to evaluate whether public direct intervention in the form of governmental venture capitalists (GVCs) have bridged the equity gap by stimulating more investments from private venture capitalists (PVCs). However, empirical evidence for this relationship is inconclusive. Drawing on institutional logic perspective and organizational tensions literature, we hypothesize that PVCs are less likely to invest in a venture whose prior round is backed by GVCs, owing to the conflicts or tensions between PVCs’ professional logic and GVCs’ state logic. To substantiate our argument, we further examine two moderators that revise either GVCs’ or PVCs’ conformity to their logics: limited partnership (LP) and VC status. We hypothesize that the negative relationship between GVCs’ investments and follow-on PVCs’ investments will be weakened when the GVC is less complied with the state logic by taking the form of LP and delegating the investment decisions to professional fund managers. In contrast, the negative relationship will be strengthened when the follow-on PVC holds a superior status in the VC industry which reinforces its professional logic. The results based on a sample of 2,680 VC investment deals rendered strong support to our hypotheses. Our study adds to the literature by providing a nuanced perspective of logic tensions to explain why public direct intervention in entrepreneurial finance may impede follow-on investments from private sectors.

Are start-ups funded by public venture capital different? New cross-country evidence from micro-data

Abstract Given the sizeable amount of public investments in venture capital (VC) in many countries, an emerging empirical literature investigates the impact of government venture funds on firm performance. We reassess the key findings of this literature using a new database on innovative start-ups and VC investments, which is unprecedented for granularity and comprehensiveness and covers a longer, more recent time period. Our analysis confirms the established finding that start-ups backed by government VC underperform start-ups backed by private investors. Differently from the extant literature, instead, we do not find that mixed public–private investments in the first stage are associated with additional private investments in later funding rounds. We interpret this as evidence that public VC is bounded to fail without an ongoing commitment throughout the process of development and growth of new ventures.

Is SBIR a Government Venture Fund?

The federal government's well-known Small Business Innovation Research (SBIR) program funds small businesses that are developing and commercializing innovative new technology. It is commonly regarded as a "government venture fund." This label is unfortunate. Within the U.S., it has caused the SBIR program to be criticized both for competing with private ven- ture capital funds (VCs) and for wasting scarce taxpayer resources on small businesses that, according to some detractors, are not as successful at generating innovation as venture capital (VC)-backed companies. These criticisms divert attention from SBIR program successes, generate unnecessary drama during congressional SBIR reauthorization debates, and sideline important opportunities to improve the SBIR program. Outside the U.S., the "government venture fund" concept disguises the very real differences between the SBIR program and VCs, potentially undermining the effectiveness of government initiatives to promote innovation. There are actually few similarities between the SBIR program and VCs—aside from the fact that both provide comparable amounts of seed-stage funding to small technology firms. As a matter of public policy, it needs to be clearly understood that the SBIR program is not a government venture fund, does not compete with VCs, and has objectives of national economic and soci- etal importance that do not conflict with those of private-sector investors. This paper begins by comparing the number and size of SBIR and VC seed-stage investments in the U.S. Then it contrasts their very different objectives, company selection criteria, staging of investments, obligations imposed on recipient companies, and metrics used to measure success.