Public Venture Capital for Swedish Innovation - Theory and Practise

University essay from Handelshögskolan i Stockholm/Institutionen för nationalekonomi

Abstract: In this study we tested prevailing theory relating to efficient government intervention in the shape of public venture capital. The rationale for such intervention rests upon the theoretical notion of a market failure in financing of innovative companies in early stages. We conducted interviews with practitioners in the Swedish public venture capital market in order to test the applicability of the theories. This resulted in the finding that the theoretical framework accurately emphasises the importance for government-owned funds to provide competence in addition to capital and that theory also accounts for proper scope in investment activity, where sectorial and regional limits should be avoided. Still, theory needs to be revised in order to incorporate historical aspects and dynamics between different financing stages. The theoretical framework should be extended by taking sector-specific time horizons into account and distinguishing between cases where it is in fact feasible to introduce formal requirements of co-investments with private actors. In addition, exit markets are found to play an important role in these market dynamics. Specifically, a perceived scarcity of potential buyers in later stages could pose an obstacle to functioning early stage-financing.

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