Are Venture Capitalists a Catalyst for Innovation, or Do They Simply Exploit it?

Analyzing 153 venture-backed and non-venture-backed companies that went public in Italy between 1995 and 2004, we tested two hypotheses about the role of venture capital in developing innovations within firms. The first concerns the relevance of innovation and whether it is present when venture capitalists decide to invest. The second considers the behavior of venture capitalists after investing: is it to sustain innovation, or simply take advantage of it? The results confirm that equity capital investment is based on researching companies with high growth prospects and strong innovation in place, but when an agreement is reached and investment is made, venture capitalist commitment is focused on trading former innovations, rather than developing new innovative projects