During the last two decades both academics and politicians have argued that firms financed with VC grow faster, invest more, are more innovative and create above average employment. However, assertions were based more on intuition regarding the results of those companies achieving an enormous success. The piece still missing is solid empirical evidence of the existence of a significant impact on the country's economy. Two common flaws in previous studies are: (1) they rely on biased samples of limited scope, only including successful companies and (2) they do not consider the event of VC financing. Two common reasons can explain these deficiencies. First, lack of data to identify the population. Second, the difficulty to access the financial information of privately held firms. The aim of this paper is to advance knowledge of the economic impact of venture-backed companies, providing empirical evidence to affirm that: (1) VC-financed companies have a greater economic impact than similar companies financed by other sources of capital; (2) VC funding has a positive and significant effect on this greater economic impact. For the purpose of our study, the economic impact is measured through the evolution of employment, sales, gross margin, total assets, net intangible assets and corporate taxes. The method proposed is the analysis of the evolution over time of the sample's variables, and a control group, considering the event of the first VC financing, and the period around it. Two databases are used, one to identify the target companies and another one to obtain their individual financial information. The results obtained show that, on average, VC-backed companies grow faster than the control group for all variables analyzed. Furthermore, evidence is found of the significant, positive effect that either the presence or the amount invested exert on the evolution of such items over time. This paper has several implications. First, it opens up a new line of research. Second, it provides relevant data for policy makers to justify the measures aimed at developing an environment where VC activity is viable. More research is needed to study the factors determining the positive effect found in this paper.

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Alemany Gil, Luisa; Martí Pellón, José

Unbiased estimation of economic impact of venture capital and private equity: The case of Spain

During the last two decades both academics and politicians have argued that firms financed with VC grow faster, invest more, are more innovative and create above average employment. However, assertions were based more on intuition regarding the results of those companies achieving an enormous success. The piece still missing is solid empirical evidence of the existence of a significant impact on the country's economy. Two common flaws in previous studies are: (1) they rely on biased samples of limited scope, only including successful companies and (2) they do not consider the event of VC financing. Two common reasons can explain these deficiencies. First, lack of data to identify the population. Second, the difficulty to access the financial information of privately held firms. The aim of this paper is to advance knowledge of the economic impact of venture-backed companies, providing empirical evidence to affirm that: (1) VC-financed companies have a greater economic impact than similar companies financed by other sources of capital; (2) VC funding has a positive and significant effect on this greater economic impact. For the purpose of our study, the economic impact is measured through the evolution of employment, sales, gross margin, total assets, net intangible assets and corporate taxes. The method proposed is the analysis of the evolution over time of the sample's variables, and a control group, considering the event of the first VC financing, and the period around it. Two databases are used, one to identify the target companies and another one to obtain their individual financial information. The results obtained show that, on average, VC-backed companies grow faster than the control group for all variables analyzed. Furthermore, evidence is found of the significant, positive effect that either the presence or the amount invested exert on the evolution of such items over time. This paper has several implications. First, it opens up a new line of research. Second, it provides relevant data for policy makers to justify the measures aimed at developing an environment where VC activity is viable. More research is needed to study the factors determining the positive effect found in this paper.
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Unbiased estimation of economic impact of venture capital and private equity: The case of Spain
Alemany Gil, Luisa; Martí Pellón, José
2005 Babson College Entrepreneurship Research Conference (2005 BCERC)
Babson College
Babson Park (United States of America), 08/06/2005 - 11/06/2005

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