Astrid Romain

On the relationship between patents and venture capital

Venture capital (VC) is a financial intermediary that aims at meeting innovative start-ups’ needs. These firms are generally associated with large growth potentials and high levels of uncertainty. A growing number of scholars have documented the positive impact that venture funds have on the probability of success of start-ups, as well as on the growth of their sales and employees. Most government bodies in industrialized countries now recognize the importance of VC as a factor underlying firm creation and sustainable growth.1 Despite this wide recognition of venture funds as key players underlying economic performances, there are huge differences across industrialized countries in the relative amounts of VC. It is relatively high in the USA and Canada for instance, whereas it is very low in Japan. The diversity of national financial systems is undoubtedly one important factor underlying these international differences (see, for example, Black and Gilson, 1998). Other factors also play an important role, as shown by Gompers and Lerner (1998) and Jeng and Wells (2000). With a panel dataset of 21 countries, Jeng and Wells show that labour market rigidities, the level of initial public offerings (IPO), government programmes for entrepreneurship, and bankruptcy procedures explain a significant share of cross-country variations in VC intensity.