Venture capital financing and the growth of high-tech start-ups: Disentangling treatment from selection effects

Venture capital financing and the growth of high-tech start-ups: Disentangling treatment from selection effects: "Publication year: 2011
Source: Research Policy, In Press, Corrected Proof, Available online 25 May 2011
Fabio, Bertoni , Massimo G., Colombo , Luca, Grilli
The financial and innovation literature generally claims that venture capital (VC) investments spur the growth of new technology-based firms (NTBFs). However, it has proved difficult so far to separate the “treatment” effect of the VC investment from the “selection” effect attributable to the ability of the VC investor to screen high growth NTBFs. The aim of this work is to test whether VC investments have a positive treatment effect on the growth of employment and sales of NTBFs. For this purpose we consider a 10-year longitudinal data set for 538 Italian NTBFs, most of which are privately held. The sample...
 Highlights: ► We study the impact of venture capital investments on young high-tech firm growth. ► We disentangle the treatment and selection effect of venture capital (VC). ► A longitudinal dataset of 538 Italian young high-tech firms (NTBFs) is used. ► The treatment is of large magnitude while the selection effect appears to be negligible. ► Most of the impact is obtained immediately after the first round of VC finance."