Abstract
When compared to the U.S. and Israel, the weak venture capital (VC) markets and VC policy in Europe up to the early 2000s stimulated two alternative streams of research. A majority view, which we term traditional, focuses on the role of VC in overcoming market failure in the financing of innovative ventures. The policy recommendations emerging from this view involve a mix of monetary incentives and institutional changes that can be applied irrespective of the local context. The second is an evolutionary perspective on VC and VC policy. This is based on a dynamic analysis of the co-evolution between VC and high-tech entrepreneurship, as well as an adaptive view of policy and policymaking (Metcalfe, Econ J 104(425):931–944, 1994). In this setting, policy-makers have to overcome not only market failure but also dynamic system failure associated with the linked emergence of entrepreneurial high-tech clusters. Overcoming traditional market failure becomes a necessary but not sufficient pre-emergence condition for the eventual attainment of the latter policy objectives. This paper surveys the post-2000 literature on VC and VC policy and criticizes some of its assumptions and results. Moreover, it examines the Israeli and UK/Scotland innovation policy frameworks from an historical perspective, which allows us to highlight differences in approaches and impacts. The upshot is that the success of VC policies depends on a number of factors, including the phase of emergence of a VC market and high-tech cluster and the specific country/region institutional setting.
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Notes
Income tax relieves: (i) exemption from income tax on dividends from ordinary shares in VCTs (‘dividend relief’), and (ii) ‘income tax relief’ at the rate of 30% of the amount subscribed for shares issued in the current tax year and onwards (subscriptions for shares issued in previous tax years: rate is 40%). The shares must be new ordinary shares and must not carry any preferential rights or rights of redemption at any time in the period of five years. Capital gains tax (CGT) relieves: (i) Capital Gains Tax not to be paid on any gain you make when you dispose of your VCT shares. (This is called disposal relief).; (ii) Investors are able to treat gains arising on disposals around the time VCT shares are issued as postponed to a later year.
The RVCFs main operational criteria are: (i) each fund operates within a regional boundary, (ii) fund managers manage funds on a purely commercial basis, (iii) fund managers make all investment decisions, including how the investment should be structured. RVCFs can invest up to £250,000 in equity or debt into early stage businesses or needing development capital either for an acquisition or for organic growth.
This notion presupposes a distinction between simple markets and multilayer super-markets, such as NASDAQ, which enable participants to relate to a number of markets simultaneously thereby better coordinating their needs to the capabilities offered.
Innovations may affect the value chain and increase the degree of ‘roundaboutness’ in the economy. For an analysis on these lines see Rosenberg’s study of the machine tool industry in the US in the nineteenth century which resulted from processes of vertical disintegration and technological convergence. It is clear from his analysis that the economic impact of the new set of machine tool innovations depended on the creation of an industry and, by implication, a market (Rosenberg 1963).
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This paper benefited from the Policy Memorandum of the ‘Venture Fun Project’, Prime Network of Excellence (Teubal et al. 2007). We thank members of Venture Fun, particularly Terttu Luukkonen, Massimo Colombo and Pascal Petit.
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Rosiello, A., Avnimelech, G. & Teubal, M. Towards a systemic and evolutionary framework for venture capital policy. J Evol Econ 21, 167–189 (2011). https://doi.org/10.1007/s00191-010-0189-x
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DOI: https://doi.org/10.1007/s00191-010-0189-x