Government Policy Towards Entrepreneurial Finance: Innovation Investment Funds

56 Pages Posted: 20 Sep 2005

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

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This paper analyses 280 Australian venture capital and private equity funds and their investments in 845 entrepreneurial firms over the period 1982-2005. I focus the analysis on the Innovation Investment Fund (IIF) governmental program, first introduced in 1997. In order to highlight the unique aspects of the IIF, I compare the properties of the Australian IIF program with government venture capital programs in Canada, the UK and the US. The IIF program is unique with a focus on partnering between government-private sector partnerships, as described herein. I analyse the performance of the IIF funds along several dimensions: the propensity to take on risk by investing in early stage and high-tech investments; the propensity to monitor and add value to investees through staging, syndication, and portfolio size per fund manager; and the exit success. For each of these evaluation criteria, I assess the performance of the IIF funds relative to other types of private equity and venture capital funds in Australia. The data analysed show - in both a statistically and economically significant way - that the IIF program has facilitated investment in start-up, early stage and high tech firms as well as the provision of monitoring and value-added advice to investees. Overall, therefore, the data are strongly consistent with the view that the IIF program is fostering the development of the Australian venture capital industry. However, the vast majority of investments have not yet been exited, and the exit performance of IIFs to date has not been statistically different than that of other private funds. Further evaluation of IIF performance and outcomes is warranted when subsequent years of data become available.

Keywords: Private Equity, Venture Capital, Government Public Policy, Entrepreneurship

JEL Classification: G24, G28, G31, G32, G35

Suggested Citation

Cumming, Douglas J., Government Policy Towards Entrepreneurial Finance: Innovation Investment Funds. Journal of Business Venturing, Vol. 22, No. 2, pp. 193-235, 2007, Available at SSRN:

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

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Boca Raton, FL 33431
United States


Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

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