VENTURE FUN project

1
VENTURE FUN project

• PRIME Annual Meeting
• WG1
• 7 January, 2005, Manchester

2
The project

• VENTURE FUN The Role of Venture Capital in
  Promoting High Tech and Science Based Growth A
  New Rationale for European Policy-Making?
• Participants ETLA (Finland co-ord.), CNRS
  (France), Innogen (UEDIN) (UK), Politechnico
  (CPI-Milan, Italy), TECHNION (Israel)
• Three-year project, started in Sept. 2004

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Purpose of the project

• Understand the role of intermediation by VCs for
  the growth of high tech industries special focus
  in ICT and Life Sciences (biotechnology)
• Study the extent to which different institutions/
  organisations in different countries fulfil this
  function
• Success of policies in promoting VC
  intermediation
• The countries participating in the study provide
  different profiles in terms of VC development
  with Israel a prime case of success in VC
  development and policies and other countries
  offering different institutional contexts
  (different mixes of public-private institutional
  developments)

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VC definition

• A strict definition of VC will be used in the
  project. Under this definition VC refers to
  early phase, equity based financing of high risk/
  high growth, high tech start-ups (SU).
• The definition includes both private,
  unaffiliated VC companies and other categories of
  VC which might be relevant for the promotion of
  high tech and science-based growth public VC
  companies, mixed/hybrid forms involving both
  public and private participation and affiliated
  VC companies (corporate VC, VC affiliates of
  financial institutions, etc).
• The project further strives to identify other
  equity-based institutions/mechanisms for SU
  support such as direct investments by high tech
  corporations (e.g. Nokia), banks (e.g. in Italy)
  individuals (angels), etc
• Life cycle perspective on VC

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Intermediation working definition

• In addition to funds, VC firms provide their
  portfolio companies with value-adding
  capabilities with regard to activities such as
  management, headhunting, marketing, networking,
  certification and reputation.
• Even though this is referred to in conventional
  financial studies on VCs, it is not their actual
  focus
• An important object of the study is to expand the
  concept of intermediation

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Our study

• Draws on evolutionary perspectives according to
  which the emergence of venture capital can be the
  outcome of a policy-influenced selection
  environment. The latter influences performance of
  economic systems with regard to innovation and
  growth.
• VCs are a component of the innovation system.
  Their interactions within the system go far
  beyond providing firms with financial support and
  include the intermediation function, as referred
  to.

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VCs in financial literature

• It is a question of information asymmetries
  literature highlights how and why VC is able to
  deal with adverse selection and moral hazards
  problems more efficiently than other financial
  institutions
• Intermediation through specialized VC means
  providing SU finance through equity in a more
  effective way than through traditional mechanisms
  such as bank loans
• It also means provision of value added services
  to SU

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Institutional focus of Venture Fun

• Objective is to present country-specific, VC
  institutional and organizational components,
  arrangements and mechanisms and to analytically
  identify and describe different country profiles
  of VC industries and associated high tech
  clusters
• To differentiate between two high tech sectors
  ICT and Biotechnology
• Attention also to policies promoting the
  emergence and development of VCs
• Special framework conditions in each studied
  country

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Phases of the study

• First Year
• First (current) stage literature reviews of the
  central concepts and definitions plus feasibility
  studies
• Second stage (mostly) through use of published
  information pertaining to the VC industry level
  to generate
• Industry-level descriptions of VC sector
• Industry-level descriptions of ICT and LF sectors
• Sets of policies directed to VC sector and
  preliminary hypotheses about degree of impact
  (and reasons for)
• Result will be broad country profiles in terms of
  their institutional set-up. Conclusions on the
  interactions between the developments of VC and
  high tech sectors and of the policies pursued
• Data sources literature, statistics, documents,
  interviews with key people

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Phases of the study

• Second Year based on systematic collection of
  microeconomic information and its integration
  into the industry level data of year 1
• More detailed studies of how the VC industry
  works in each country with regard to
  intermediation (surveys)
• More detailed studies of intermediation as
  reflected in the funded companies (surveys)
• Empirical analysis of intermediation, with
  attention to differences in the requirements and
  the ways VC act in the two sectors
• Conclusions on the differences between different
  organisations involved in VC functions (limited
  partnerships, corporate VCs, semi-public VC
  organisations)
• Beginnings of cross-country comparisons

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Phases of the study

• Year Three
• Systematic policy analysis
• Systematic comparisons between countries, high
  tech sectors, organisation types
• Policy conclusions and recommendations

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Interactions with users

• Policy-makers, VC practitioners
• Workshops where preliminary findings will be
  presented

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Training activities

• Several PhDs theses to be made in connection with
  the study with students as active members of the
  teams and participating in the project
  meetings/workshops