Venture capital as a catalyst for commercialization and high growth
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We use Canadian data linking information on venture capital (VC) financing with firm-level administrative data to compare performance of VC-backed and non-VC-backed firms. The richness of the data allows us to incorporate a wide range of firm-level information into creating a control group based on propensity-score matching. In particular, we use typical covariates reflecting firm performance and characteristics (e.g., size, age, industry, location) as well as measures of firm-level innovation such as research and development (R&D) expenditures that are often thought to be associated with the potential for high growth and the probability of receiving VC financing. Our results show R&D expenditures not only attract VC, but are also increased more intensely for VC-backed firms than non-VC-backed counterparts over the short-run. Further, we show VC-backed firms enjoy greater growth in wages and scale over the 5-year period. Overall, our results provide empirical evidence that VC financing is associated with the acceleration of the innovation and commercialization process accompanied by greater growth in wages and scale.
KeywordsVenture capital Innovation Firm performance Matching estimation
JEL ClassificationL25 L26 O32
We would like to thank Statistics Canada, the Canadian Venture Capitalist Association and the Small Business Branch of Innovation, Science and Economic Development Canada for assistance and comments throughout this project. In particular, we would like to thank Jim Valerio, Shane Dolan, Anne-Marie Rollin and Younes Errounda for their tireless efforts in the data development and descriptive analysis that made this research possible. We would also like to thank Thomas Hellmann, Javier Miranda, Mariagrazia Squicciarini, Robin Prager, Leonard Sabetti and participants at the 2014 OECD Conference on Entrepreneurship, Innovation and Enterprise Dynamics, the 12th Annual International Industrial Organization Conference and the 47th Annual Canadian Economics Association Meetings for their helpful comments and suggestions. Finally, we would like to thank two anonymous referees whose suggestions tremendously improved this paper.
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