Venture capital investor type and the growth of new technology-based firms

Venture capital (VC) investments spur the growth of new technology-based firms (NTBFs). In this paper we distinguish between financial (FVC) and non-financial investors (i.e. corporate venture capital, CVC) as a source of VC. We test i) whether FVC and CVC investments have a positive treatment effect on the growth of employment and sales of NTBFs beyond the effect attributable to selection by VC investors of firms with future high growth prospects, and ii) whether the magnitude and the pattern over time of this treatment effect differ according to the type of investor. For this purpose we consider a 10-year longitudinal dataset for 538 Italian NTBFs, most of which are privately held. The sample includes both VC-backed and non-VC-backed firms. We estimate Gibrat-law-type dynamic panel-data models augmented with time-varying variables that capture the VC status of firms and the type of investor for VC-backed firms. To control for the endogeneity of VC investments we use several GMM estimators. The results strongly support the view that both FVC and CVC investments have a positive "treatment" effect on the growth of firms' employees and sales. Whereas the post-investment dynamics of employment growth is similar for FVC-and CVC-backed firms, the sales boost immediately after the first round of VC finance is greater for FVC- than for CVC-backed firms.