The driving forces of Venture Capital funding in Sweden - A longitudinal study of the determinants and principal components of Venture Capital funding in Sweden from 2001 to 2020
Abstract: This thesis analyses the driving forces of Venture Capital (VC) funding in Sweden over theyears 2001 - 2020. The driving forces of VC funding is an essential piece in understandinghow well the Swedish VC industry works and fulfills its purpose in the economy. Thisknowledge is missing in the literature. The main novelty of this research is the multifacetedinvestigation of the determinants, economic crises and overarching effects which might affectVC funding in Sweden. The dataset investigated consists of 10 different determinants in theform of economic variables from different institutional environments and four dependentvariables in composite-source measures for each of the VC funding investment stages (Total,Seed, Startup and Expansion funding). This data is analyzed using OLS regression modelsand the dimensionality-reduction technique Principal Component Analysis (PCA); a novelapplication for investigating the Swedish VC industry. The results show that VC funding wasaffected positively by the positive development of the stock market, higher interest rates andlarger spending on research and development (R&D) but negatively affected by more patentapplications and a higher level of labor market rigidity. The regression results vary heavilybetween different investment stages and the effects of IPO activity and corporate tax ratecould surprisingly not be established in any stage. It is also concluded that the economiccrises of the period drastically harmed the amount of VC funding. From the PCA, the twocomponents “Investor focus on VC and Innovation” and “State of the Financial Market” weresignificant in explaining VC funding which confirms the existence of cohesive effects in theeconomy capable of providing better ground for future research around the true drivers of VCfunding in Sweden.
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