Public Subsidies and the Sources of Venture Capital

Abstract

Research suggests that public subsidies for newly founded firms have a positive effect on follow-on financing, in particular, Venture Capital (VC). This study differentiates between Government VC, Independent VC, Corporate VC, and Business Angels and shows that public subsidies are not relevant for all of these sources. When accounting for firm characteristics that drive both selection into public subsidies as well as into VC financing through econometric matching techniques, we find that subsidies are only linked to Government VC and Business Angel financing.

Keywords: Start-up Subsidies, Entrepreneurship Policy, Entrepreneurial Finance, Venture Capital, Business Angels

JEL Classification: G24, L26, O25, O31