The Impact of Venture Capital on the Productivity Growth of European Entrepreneurial Firms: 'Screening' or 'Value added' Effect?

Abstract

We aim to ascertain to what extent the better performance of European venture capital (VC)-backed firms in high-tech industries is due to either ‘screening’ or ‘value added’ provided by VC investors. We compare portfolio firms’ productivity growth before and after the first VC round, using a matched control group as benchmark. We show that productivity growth is not significantly different between VC and non-VC-backed firms before the first round of VC financing, whereas significant differences are found in the first years after the investment event. We also find that the value-adding services provided by VC investors 'imprint' the portfolio firm.

Keywords: venture capital, entrepreneurial firms, productivity, screening, value added, imprinting effect

JEL Classification: G24, D24, M13, C23