Government Sponsored Versus Private Venture Capital: Canadian Evidence

65 Pages Posted: 26 May 2008 Last revised: 7 Nov 2014

See all articles by James A. Brander

James A. Brander

University of British Columbia (UBC) - Sauder School of Business

Edward J. Egan

affiliation not provided to SSRN

Thomas F. Hellmann

University of Oxford - Said Business School; University of Oxford - Said Business School

Date Written: May 2008

Abstract

This paper investigates the relative performance of enterprises backed by government-sponsored venture capitalists and private venture capitalists. While previous studies focus mainly on investor returns, this paper focuses on a broader set of public policy objectives, including value-creation, innovation, and competition. A number of novel data-collection methods, including web-crawlers, are used to assemble a near-comprehensive data set of Canadian venture-capital backed enterprises. The results indicate that enterprises financed by government-sponsored venture capitalists underperform on a variety of criteria, including value-creation, as measured by the likelihood and size of IPOs and M&As, and innovation, as measured by patents. It is important to understand whether such underperformance arises from a selection effect in which private venture capitalists have a higher quality threshold for investment than subsidized venture capitalists, or whether it arises from a treatment effect in which subsidized venture capitalists crowd out private investment and, in addition, provide less effective mentoring and other value-added skills. We find suggestive evidence that crowding out and less effective treatment are problems associated with government-backed venture capital. While the data does not allow for a definitive welfare analysis, the results cast some doubt on the desirability of certain government interventions in the venture capital market.

Suggested Citation

Brander, James A. and Egan, Edward and Hellmann, Thomas F., Government Sponsored Versus Private Venture Capital: Canadian Evidence (May 2008). NBER Working Paper No. w14029. Available at SSRN: https://ssrn.com/abstract=1137118

James A. Brander (Contact Author)

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8483 (Phone)
604-822-8477 (Fax)

Edward Egan

affiliation not provided to SSRN

Thomas F. Hellmann

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

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