Theory of Government Venture Capital

26 Pages Posted: 9 Jun 2020

See all articles by Susheng Wang

Susheng Wang

Hong Kong University of Science & Technology (HKUST) - Department of Economics

Date Written: April 19, 2020

Abstract

Government-sponsored venture capitalists (GVCs) play an important role in most successful venture capital (VC) markets. This paper offers the first theory on GVCs. We investigate the role of government in VC markets, where private venture capitalists (PVCs) dominate. We find that PVCs offer better incentives, while GVCs address risks better; PVCs are more efficient in financing superior ventures, while GVCs are more efficient in financing inferior ventures; and there are ventures that are socially no-viable if financed by PVCs but are socially viable if financed by GVCs.

Keywords: Government Venture Capital, Private Venture Capital, Staged Financing, Equity Sharing, Incentive, Risk

JEL Classification: G24, G28

Suggested Citation

Wang, Susheng, Theory of Government Venture Capital (April 19, 2020). Available at SSRN: https://ssrn.com/abstract=3600602 or http://dx.doi.org/10.2139/ssrn.3600602

Susheng Wang (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Hong Kong
China

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