42 Pages Posted: 29 Dec 2012 Last revised: 29 Jul 2014
Date Written: December 28, 2012
We empirically compare the contributions of venture capital (VC) and private equity (PE) backed firms, including those backed by government subsidized Innovation Investment Funds (IIFs), to the Australian economy by analyzing employment, R&D, patents, time to IPO, and market capitalization from market inception to August 2012. VC-backed firms exhibit no material difference in employment, but do exhibit higher levels of R&D and patents and, after the passage of sufficient time, have greater market capitalization relative to PE- and non-VC/PE/IIF-backed firms. IIF-backed firms likewise exhibit no material difference in employment, but do result in a higher percentage of investments that are publicly listed and a greater market capitalization relative to both VC- and PE- and non-VC/PE/IIF-backed firms, controlling for other things being equal. PE-backed firms generate higher levels of employment, counter to anecdotal claims to the contrary. Overall, the data highlight a central role for VC and IIF investment in facilitating R&D, innovation, and economic growth. The data indicate an expansion of venture investments would facilitate more innovation and economic growth in Australia relative to the expansion of other sources of capital, particularly in view of the comparative dearth of venture investments in Australia relative to other countries.
Keywords: Venture Capital, Private Equity, Patents, R&D, Employment, IPOs, Market Capitalization, Government Policy
JEL Classification: G24, G28
Suggested Citation: Suggested Citation
By Brandon Gold