Venture Capital Financing and the Growth of New Technology-Based Firms : A Longitudinal Analysis of the Role of the Type of Investor

The financial literature claims that venture capital (VC) financing spurs the growth of new technology-based firms (NTBFs). Nevertheless, the benefits and costs for portfolio companies may depend upon the type of investor. In this paper we distinguish financial intermediaries (FVC) and non-financial companies (i.e. corporate venture capital, CVC) as a source of VC. The aim of the paper is to test whether a) VC financing has a positive effect on the subsequent growth of employment and sales of portfolio companies, and whether b) the magnitude of this effect differs according to the type of investor (i.e. FVC vs. CVC). We consider a 10 year longitudinal dataset composed of 538 Italian NTBFs, most of which are privately held. The sample includes both VC-backed and non VC-backed firms. In order to capture the effects of VC investments on the subsequent growth of firms and to control for their potentially endogenous nature, we estimate an augmented Gibrat-law type dynamic panel data model with distributed lags through different GMM-system estimators which differ according to the choice of the set of instruments. The results strongly support the view that VC finance spurs firm growth. Moreover, the impact of FVC investments considerably exceeds that of CVC investments, especially as regards sales growth