Are Venture Capitalists a Catalyst for Innovation, or Do They Simply Exploit it?

31 Pages Posted: 14 Mar 2006

See all articles by Stefano Caselli

Stefano Caselli

Bocconi University - Department of Finance

Stefano Gatti

Bocconi University - Department of Finance

Francesco Perrini

Bocconi University - Department of Management and Technology

Date Written: March 2006

Abstract

Analyzing 153 venture-backed and non-venture-backed companies that went public in Italy between 1995 and 2004, we tested two hypotheses about the role of venture capital in developing innovations within firms. The first concerns the relevance of innovation and whether it is present when venture capitalists decide to invest. The second considers the behavior of venture capitalists after investing: is it to sustain innovation, or simply take advantage of it?

The results confirm that equity capital investment is based on researching companies with high growth prospects and strong innovation in place, but when an agreement is reached and investment is made, venture capitalist commitment is focused on trading former innovations, rather than developing new innovative projects.

Keywords: growth, innovation projects, venture capital, propensity score

JEL Classification: L21, D21, D92, C14, C33

Suggested Citation

Caselli, Stefano and Gatti, Stefano and Perrini, Francesco, Are Venture Capitalists a Catalyst for Innovation, or Do They Simply Exploit it? (March 2006). Available at SSRN: https://ssrn.com/abstract=890669 or http://dx.doi.org/10.2139/ssrn.890669

Stefano Caselli (Contact Author)

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Stefano Gatti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Francesco Perrini

Bocconi University - Department of Management and Technology ( email )

Via Roentgen 1
Milan, MI 20136
Italy

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