The determinants of Public Grants and Venture Capital financing: Evidence from Europe

This monograph compares the characteristics of firms supported by public and private sources of early-stage financing to investigate funding patterns for innovative companies. We examine whether the two sources of funding target similar firms using a portfolio approach on EU-based firms raising either Venture Capital financing, public grants under the Horizon 2020 ‘SME Instrument’ scheme, or both in the period 2008-2017. Our findings show that venture capitalists fund more innovative and younger firms, whereas public investors finance smaller companies. This pattern is supported by robustness checks and expansions that address multiple dimensions of heterogeneity behaviors in the interaction of private and public funding.