TY - JOUR AU - Brander, James A AU - Egan, Edward AU - Hellmann, Thomas F TI - Government Sponsored versus Private Venture Capital: Canadian Evidence JF - National Bureau of Economic Research Working Paper Series VL - No. 14029 PY - 2008 Y2 - May 2008 DO - 10.3386/w14029 UR - http://www.nber.org/papers/w14029 L1 - http://www.nber.org/papers/w14029.pdf N1 - Author contact info: James A. Brander University of British Columbia Sauder School of Business 2053 Main Mall Vancouver, B.C. V6T 1Z2 CANADA Tel: 604/822-8483 Fax: 604/822-8477 E-Mail: brander@sauder.ubc.ca Edward Egan Rice University E-Mail: no email available Thomas F. Hellmann Saïd Business School University of Oxford Park End Street Oxford, OX1 1HP United Kingdom Tel: +44 (0)1865 288937 E-Mail: Thomas.Hellmann@sbs.ox.ac.uk M1 - published as James A. Brander, Edward Egan, Thomas F. Hellmann. "Government Sponsored versus Private Venture Capital: Canadian Evidence," in Josh Lerner and Antoinette Schoar, editors, "International Differences in Entrepreneurship" University of Chicago Press (2010) M3 - presented at "International Differences in Entrepreneurship", February 1-2, 2008 AB - This paper investigates the relative performance of enterprises backed by government-sponsored venture capitalists and private venture capitalists. While previous studies focus mainly on investor returns, this paper focuses on a broader set of public policy objectives, including value-creation, innovation, and competition. A number of novel data-collection methods, including web-crawlers, are used to assemble a near-comprehensive data set of Canadian venture-capital backed enterprises. The results indicate that enterprises financed by government-sponsored venture capitalists underperform on a variety of criteria, including value-creation, as measured by the likelihood and size of IPOs and M&As, and innovation, as measured by patents. It is important to understand whether such underperformance arises from a selection effect in which private venture capitalists have a higher quality threshold for investment than subsidized venture capitalists, or whether it arises from a treatment effect in which subsidized venture capitalists crowd out private investment and, in addition, provide less effective mentoring and other value-added skills. We find suggestive evidence that crowding out and less effective treatment are problems associated with government-backed venture capital. While the data does not allow for a definitive welfare analysis, the results cast some doubt on the desirability of certain government interventions in the venture capital market. ER -