Nber Working Paper Series the Effects of Government-sponsored Venture Capital: International Evidence

This paper examines the impact of government-sponsored venture capitalists (GVCs) on the success of enterprises. Using international enterprise-level data, we identify a surprising non-monotonicity in the effect of GVC on the likelihood of exit via initial public offerings (IPOs) or third party acquisitions. Enterprises that receive funding from both private venture capitalists (PVCs) and GVCs outperform benchmark enterprises financed purely by private venture capitalists if only a moderate fraction of funding comes from GVCs. However, enterprises underperform if a large fraction of funding comes from GVCs. Instrumental variable regressions suggest that endogeneity in the form of unobservable selection effects cannot account for these effects of GVC financing. The underperformance result appears to be largely driven by investments made in times when private venture capital is abundant. The outperformance result applies only to venture capital firms that are supported but not owned outright by governments. James A. Brander University of British Columbia Faculty of Commerce 2053 Main Mall Vancouver, B.C. V6T 1Z2 CANADA [email protected] Qianqian Du Shanghai Advanced Institute of Finance Shanghai Jiao Tong University Zhong Yuan Building, Room 313 1954 Huashan Road, Shanghai P.R.China, 200030 [email protected] Thomas F. Hellmann Sauder School of Business University of British Columbia 2053 Main Mall Vancouver, BC V6T 1Z2 Canada and NBER [email protected]