Title: The impact of basic conditions on investment in the venture capital industry. Evidence from European countries

Authors: Bernard Guilhon; Sandra Montchaud

Addresses: SKEMA Business School, 60 rue Dostoïevski, 06902 Sophia Antipolis, France ' CHERPA – Sciences Po Aix, 25 rue Gaston de Saporta, 13625 Aix-en-Provence Cedex 1, France

Abstract: Using an industrial organisation (I/O) approach, this study considers venture capital (VC) and aims to explain the scale of investments made by fund management companies by the basic conditions of this industry. Thus, within the market structure-conduct-performance paradigm, we focus on the relationship between basic conditions and VC firms' conduct. The basic conditions are analysed from the point of view of supply, (corresponding to the fund management companies that raise capital from investors), and demand, (referring to the firms in which the capital available can be invested). Macroeconomic, institutional, exit and entrepreneurial characteristics form the VC environment, and one and the same element can constitute a basic condition on both the supply and demand side. The econometric study, based on a sample of 18 European countries over the period 2002-2009, highlights the influence of the interest rate, tax and legal framework, exit context and innovation dynamics.

Keywords: venture capital; investment; industrial organisations; basic conditions; macroeconomic situation; institutional framework; exit context; entrepreneurial environment; Europe; entrepreneurship; fund management companies; firms conduct; econometrics; interest rates; tax framework; legal framework; innovation dynamics.

DOI: 10.1504/IJEIM.2015.069957

International Journal of Entrepreneurship and Innovation Management, 2015 Vol.19 No.3/4, pp.194 - 214

Accepted: 18 Nov 2014
Published online: 16 Jun 2015 *

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