Venture Capital in Europe: Closing the Gap to the U.S.

Abstract:     
We review recent developments in the European venture capital (VC) markets. For decades, most of the Continent has lagged behind the U.S. in attracting and retaining young entrepreneurs. Despite several governmental attempts to provide tax incentives and an appropriate infrastructure that would allow young start-up firms to establish themselves, European private and public markets for high-risk companies are still weak. While we document that Europe’s VC markets have grown considerably over the past eight years, European VC funds underperform U.S. funds by a significant margin. We explore the reasons behind this underperformance and discuss possible remedies. Our study draws important lessons from the U.S. to show how important a flourishing venture capital market is to a country’s economic development and how Europe may close the existing gap between the old and the new world.

Keywords: Venture Capita, Economic Policy, Entrepreneurship

JEL Classification: F30, G18, G24, G32, M13

Accepted Paper Series