Government-Backed Venture Capital Investments and Performance of Companies: The Role of Networks

In this paper we analyze how different types of venture capital investments – private, public and indirect public – affect performance of portfolio companies. We use data on more than 20,000 VC deals in Europe between 2000 and 2018 and we hand collected a unique dataset on the institutional setting (public/indirect/private) of almost 3,500 investors. We find that public VC investors perform consistently worse than purely private ones, while indirect public investments (such as the “Juncker Plan” investments) perform consistently better. We link these findings to the fact that public funds do not enter the best performing cliques of investments. On the other hand, indirect funds invest in the VC funds with the best network characteristics, which raises a question of whether indirect VC investments are associated with a high level of windfall gain, and not necessarily improve the value added by the VC funds.