The role of private versus governmental venture capital in fostering job creation during the crisis

Abstract

We analyze whether young entrepreneurial ventures backed by different types of venture capital firms, i.e., private (PVCs) vs. government-owned (GOVCs), experience higher employment growth than a matched control group of non-venture-backed companies and whether this effect is particularly relevant in a period of crisis. We base our analyses on a sample of 384 Spanish early-stage VC-backed companies financed during the period 2005-2013 (173 GOVC-backed and 211 PVC-backed) and a control group of 888 non-venture-backed peers. Our results show that PVCs exert a higher impact on employment growth in invested companies than GOVCs in investments carried out during a period of crisis whereas the opposite is found in the case of investments completed before the crisis. Moreover, we find that PVCs enhance their job-creation performance during a period of crisis while GOVCs significantly reduce their impact on employment in the investments carried out during the crisis. These findings could be attributed to the higher value added and monitoring granted by PVCs during the crisis.