Government policy towards entrepreneurial finance: Innovation investment funds
Section snippets
Executive summary
This paper analyses the Australian Innovation Investment Fund (IIF) program and venture capital in Australia in a number of dimensions. First, in order to highlight the unique aspects of the IIF, I first compare the properties of the Australian IIF program with government venture capital programs in Canada, the UK and the US. With reference to prior research on governmental venture capital programs, I argue the IIF program in Australia has a number of distinct structural features that are
Background and context
VCs are often viewed as the primary source of capital for inventive high-tech start-up companies (Gompers and Lerner, 1999, Gompers and Lerner, 2001a, Gompers and Lerner, 2001b). As small high-tech firms are reported to contribute disproportionately to innovation and economic growth (Cosh and Hughes, 2003), policy makers around the world have become increasingly concerned about the success of their high-tech sectors, and the availability of venture capital. It is further widely believed that
Government policy towards venture capital in Australia, and the institutional details of the Australian IIF program
The focus of the analyses in the remainder of this paper is on the Australian Innovation Investment Fund (IIF) Program.6 The IIF program is one of eight related programs in Australia; other initiatives include the Renewable Energy Equity Fund (REEF) Program, the Pre-Seed Fund (PSF) Program, the Pooled Development Funds (PDF) Program, the Venture Capital Limited Partnerships
Evaluation criteria for the Australian IIF program
This section outlines and describes the criteria upon which the IIFs are evaluated in this paper. The data used and empirical analyses are described and presented in the subsequent sections.
Data and summary statistics
This paper makes use of data provided by the Australian Venture Capital Association (AVCAL) and the Thompson Financial Venture Economics Database [“the AVCAL data”]. The data comprises 280 Australian venture capital and private equity funds and their investments in 845 entrepreneurial firms. In this section, I provide a graphical and descriptive analysis of the venture capital industry in Australia. The next section (Section 7) provides rigorous statistical and econometric analyses of the
Econometric regression analyses
The econometric regression analyses in this section formally test the 7 different evaluation criteria that were enumerated above in Section 5. The focus of the analysis is on the effect of the indicator variables for fund types (IIFs, funds in organizations that are affiliated with an IIF, and non-IIFs). Control variables are provided for other factors pertaining to differences over time (e.g., to capture trends in the degree of learning and skills over time, etc., as well tax incentives
Limitations and future research
The data analyzed in this study involve three primary limitations. First, AVCAL's coverage of the Australian venture capital and private equity industry is not 100%. The extent of coverage for all venture capital and private equity investments in the AVCAL data is unknown. Nevertheless, the data are the most comprehensive for the Australian venture capital and private equity industry. In regards to the coverage for IIFs, it is known (Department of Industry, Tourism and Resources, 2004) that the
Conclusions
This paper began with an overview of venture capital programs in the US, Israel, Canada and the UK. As shown, particularly with reference to the poor performance results with Canadian and UK governmental funds, designing an effective governmental venture capital program is not an easy task. The Australian IIF program structure has useful features that match private and public partnerships that resemble the Israeli and US programs.
Based on an analysis of 280 fund investments in 845
Acknowledgements
I owe special thanks to the Department of Industry, Tourism and Resources of the Corporate Strategy Branch of the Government of Australia for helpful comments and inspiring and sponsoring this research, and to the Australian Venture Capital Association for their helpful support.
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