Public versus private venture capital: Seeding or crowding out? A pan-European analysis

This paper analyzes the relationship between public and private sources of venture capital in Europe and the development of the industry, controlling for characteristics of the legal systems, in 15 European countries over the period 1990-1996. Large public participation is correlated with smaller VC industries, but analyses do not support the view that public venture capitalists are acting to seed the industry or that are they crowd-out private funds. On the contrary, public involvement seems to cause greater amounts of money to be invested in the industry as a whole. We argue that the effects of public intervention, whatever the motives, are real and probably result from demonstrating/sanctioning the social merit of venture capital and from signaling an enduring commitment to it. © 2003 Elsevier Science Inc. All rights reserved.