Government Venture Capital and Cross-Border Investment

Do government venture capital (GVC) funds crowd-in or crowd-out international private venture capital (PVC) investment? The crowding-in effect arises when international PVC benefits from government subsidies through the enhancement of an entrepreneurial ecosystem and investment syndication. The crowding-out effect arises when GVC competes with PVC, bidding up deal prices and lowering returns, thereby spurring local PVCs to invest internationally. We examine data from 26 countries from 1998 to 2013. The analysis indicates that, on average, mixed structured GVC investments crowds-in, and pure-structured GVC investments crowds-out domestic and foreign PVCs. Moreover, the effect of both structures is greater on domestic PVC compared to foreign PVC.