Ten Meditations on (Public) Venture Capital – Revisited

Abstract

This paper reflects on the policy formation process in the burgeoning area of government's involvement venture capital finance (VC) over the two decades 2000-2020. It looks at both why and how government VC funds (GVC) have evolved. The increasingly common vehicle of 'hybrid' co-investment funds, which include both public and private VC investors managed by a jointly approved private fund manager, is analysed. The evolution and greater refinement of public intervention in VC markets over time is acknowledged while noting that significant operational challenges remain. There is some evidence that later iterations of GVC programmes have started to add net value which may imply a public-policy learning process. A fluctuating supply over time for venture capital finance, particularly at the earliest stages of firm formation and growth, suggests the benefits of well-designed and complementary government venture capital activity. The rubric of Ten Meditations is employed as a device to communicate both problem and prescription across the academic/policy maker divide. The paper is intended to be relevant to policy makers while grounded in robust academic research. 1 See page 8 2 The state played a major role in the encouragement of BA activity via financial support for BA networks as well as offering BA investors a range of tax breaks on early-stage investments (Nightingale et al, 2009). 3 In the last five years, the arrival of 'equity crowdfunding' could also be seen as a third response to rationing of the supply of classic venture capital (Hornuf and Schweinbacher, 2014; Collins and Pierrakis, 2012).

Lessons From Government Venture Capital Funds to Enable Transition to a Low-Carbon Economy: The U.K. Case

“…Europe, North America and Oceania) has been GVCF instruments [44], [64]. Developments in GVCF in Europe since 2000 [24], [25], [20] and particularly in the UK after GFC adjustments [26], [51] are well documented. This period has seen the emergence of hybrid GVCF [24], [25], which cofinance government and private VC and follow Lerner's [44] advocacy that the private sector experts take the lead in selecting portfolio venture investments, with GVCFs nurturing then withdrawing once private VC is sustainable.…”

“…GVCF literature [71], [70], [24], [25], [57], [59], [72], [26], [8], [21] points to its catalytic role in delivering earlier stage venture private investment. Lerner [44] reviews more successful GVCF programs, finding the US Small Business Investment Company (SBIC) led the way in the late 1950s.…”

“…Kraemer-Eis et al, [73; 36) also commend EU European Investment Fund (EIF) first time VC assistance; "…many of the commercial VC firms being the pillar of Europe's VC industry today would not be there without having been initiated by EIF." However, Lerner [44] and Murray [25] caution VC is a long game taking decades to establish. Murray [25] also observes recent success is borne out of previous failures, suggesting organizational, absorptive learning capabilities [35], [40], by policymakers and VC fund managers has underpinned evolving GVCF hybridity.…”

“…However, Lerner [44] and Murray [25] caution VC is a long game taking decades to establish. Murray [25] also observes recent success is borne out of previous failures, suggesting organizational, absorptive learning capabilities [35], [40], by policymakers and VC fund managers has underpinned evolving GVCF hybridity.…”

“…This paper focuses on the UK, a mature European VC market [2], [20], [21], perceived as a leading exponent of low carbon finance innovations [22], [23], notably through the recently established Green Finance Institute (2019). The paper examines the supply-side role of VC as a key pivotal private finance provider where public sector co-financing assistance through Government Venture Capital Funds (GVCFs) [24], [25], can make a difference. Lessons from the UK's post-GFC GVCF market, from 2009 onwards [26], [8], are used to demonstrate how to create a more efficient financing escalator [27], [28], to assist early-stage cleantech ventures through the 'valley of death' from proof of concept to achieving secure market traction [29].…”