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Venture Fun

Revisiting in a European perspective, the emergence, dynamics and role of venture capital industry : insights from the Venture Fun project.

While the previous project was focused on firms themselves, this second project considered the emergence of venture capital industries in Europe in a country- and sector-comparative mode.
The project had two complementary objectives. One was more theoretical focusing on the development of an evolutionary approach to VC industry development, while the other focused on policy interventions. The former has given rise to a successive set of papers by M. Teubal and colleagues (2006, 2008 and 2010, see box below). The other focused on an in-depth comparative analysis of policy interventions supporting venture capital to derive lessons for further policy development. The box below presents the practical policy recommendations derived from the comparative analysis made. These insights have driven to numerous interactions with policy-makers during the life of the project, both through a series of meetings and during the empirical phases. For example, in Finland the empirical studies for the project were funded by the Finnish Funding Agency for Technology and Innovation and the Ministry of Trade and Innovation, “leading to a lot of formal and informal interaction with representatives of these funding bodies and direct dissemination to them” (see 2007 Venture Fun strategic report).
The results arrived at drove PRIME to support a targeted conference gathering policymakers, university TTO and VC industry representatives (Milano, 2008, see key events) presenting the projects results and discussing (a) the impact of venture capital on firm’s performance, (b) the role of VC in adding value to portfolio firms, and (c) the interactions between VC and TTOs.
One important conclusion was the need to broaden the narrow financial focus often adopted in the study of venture capital. The results arrived at by the project and presented during the conference (they give rise to a special issue of the journal Venture Capital due end of 2010) have resulted in defining a revised research agenda, which has been successfully taken up in a FP7 project (2009-2012).

Policy recommendations about supporting Venture Capital Industries
The standard literature focuses its attention on the way in which venture capital works with respect to public companies (those listed on stock exchanges), ignoring unlisted companies that are crucial in understanding innovation, particularly in Europe. Europe has also different institutional variants of venture capital investors, partially or fully in the public sector.
Venture capital firms provide much more than just cash. They also bring capabilities such as management expertise, headhunting, marketing, networking, certification and reputational benefits. VC firms can also help start-up companies with international expansion. These dimensions have not been well analysed in recent years, in particular, with regard to the performance of different institutional variants of venture capital.
Research findings suggest that public sector venture capital organisations have fewer resources to provide the above-mentioned business capabilities as compared with professional private-sector venture capital firms. Governments should, therefore, devote attention not just to filling the early stage ‘financial gap’, by providing money to new (public) funds, but also promoting the framework conditions which are conducive to the supply of venture capital and the development of venture capital markets and/or industry.
The same solution does not work everywhere, and therefore, governments need to develop strategic capabilities and institutions for making an assessment of the situation in their country and to find the most appropriate measures to improve it. Not all countries need or can sustain well developed venture capital industries, but can promote early-stage start-ups sufficiently through the promotion of venture capital markets, partially relying on cross-border venture capital investments.
Venture capital alone is not a panacea for the development of knowledge-based society. ICT created the demand for the emergence of venture capital as an industry. Other technology areas such as life sciences can require more ‘patient’ money than venture capital and therefore demand different financial arrangements.
Lastly, venture capital policy is closely related to innovation policy, and one of the background conditions necessary for the creation of venture capital markets and/or industry is the creation of demand, that is, a sufficient number of new start-ups offering attractive investment opportunities. Governments need, therefore, to develop strategic capabilities which cover policies horizontally.


Main Presentations of Venture Fun Results – Milano Conference (2008, 28-29 May)
F. Bertoni, MG. Colombo, L. Grilli, (Politecnico di Milano), Venture capital financing and the growth of new technology-based firms : A longitudinal analysis on the role of the type of investor
M. Da Rin, MF. Penas (Tilburg University), The effect of venture capital on innovation strategies
T. Luukkonen (ETLA, The Research Institute of the Finnish Economy), The value-added of venture capital investors : Strategies of different types of investors
B. Clarysse (Imperial College), M. Knockaert (Vlerick Business School), Determinants of VC’s interest for academic spin-out investing
A. Rosiello, S. Parris (ESCR Innogen) The patterns of venture capital investment in the UK bio-healthcare sector : on geography, co-evolution and the provision of added value
G. Avnimelech, M. Teubal, (Hebrew University), Evolutionary targeting
P. Petit, M. Ben Gadha (CNRS), From research to innovation : how to bridge the gap in a more financialized world
These have been gathered in the 2010 special issue of Venture Capital (vol12, Issue 4).

Presentations at the 2008 French presidency conference (Toulouse, 7-9 July)
F. Bertoni, M.G. Colombo, L. Grilli, 2008, Venture capital financing and the growth of new technology-based firms : a longitudinal analysis on the role of the type of investor
F. Bertoni, A. Croce, 2008, The effect of venture capital financing on firm’s investment cash flow sensitivity 

Other Papers and Presentations from the Venture Fun project
Avnimelech G., Rosiello A., Teubal M, 2010, Systemic and Evolutionary Interpretation of Venture Capital Development and Policy in Israel, Germany, UK and Scotland, Science and Public Policy, 37(2), pp. 101-112.
M. Colombo, L. Grilli, 2010, On growth drivers og high-tech start-ups : Exploring the role of foundrers’ human capital and venture capital, Journal of Business Venturing, vol 25, 610-626.
Bertoni, Colombo, D’Adda, Grilli, 2010, “Are NTBFs keen on having VC financing ? An empirical analysis on the determinants of VC seeking and its impact in evaluating performance”, EFMA Conference, June 2010, Aarus (Denmark)
Rosiello, A, and Parris S, 2009, The patterns of venture capital investment in the UK bio-healthcare sector : the role of proximity, cumulative learning and specialisation, Venture Capital, an International Journal in Entrepreneurial Finance, Volume 11, Issue 3, 185-212.
F. Bertoni, M. Colombo, D. D’Adda, L. Grilli , 2009, Self-selection in the market for VC and growth performances : evidence from a sample of Italian New Technology-Based Firms, Academy of Management Conference, Chicago, USA
F. Bertoni, M. Colombo, D. D’Adda, L. Grilli, 2009, Equity financing and the growth of new technology-based firms : correcting for self-selection”, Zvi Griliches Research Summer School in Economics of Innovation
Avnimelech G. and Teubal M., 2008, From Direct Support of Business Sector R&D/ Innovation to Targeting Venture Capital/Private equity : A Catching-Up Innovation and Technology Policy Life Cycle Perspective, Economics of Innovation and New Technology 17 (1), pp. 153-172.
Avnimelech G. and Teubal M, 2008, Evolutionary Targeting, Journal of Evolutionary Economics, 18 (2), pp. 151-166.
F. Bertoni, M.G. Colombo, D. D’Adda, 2008, “Equity financing and the patenting activity of new technology-based firms : evidence from Italy”, International Schumpeterian Society Conference 2008, Rio de Janeiro
Avnimelech G and Teubal M., 2006, Creating venture capital industries that co-evolve with high tech : Insights from an extended industry life cycle perspective of the Israeli experience, Research Policy 35, 1477–1498



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