3.1 VC Definitions and Market Development

Question 1

The importance of VC in the overall economy:

Growth
▪ VC helps to explain differences in…

Innovation
▪ Contribution to economy’s innovations, VC is much higher compared to
▪ 1 dollar spent in VC produces around 3 times more, and higher quality innovation (measured in …) than industrial corporate R&D spending

Employment
▪ VC positively affects the …, employment, and …
▪ Also, non-VC backed companies profit from VC through the incentive to get…

Spillover effects
▪ VC-backed companies (e.g., Amazon, Microsoft, FedEx) are not only among the most successful, employment-creating, and innovative, but also create spillover effects to the whole economy; e.g., Microsoft Windows, AWS, FedEx’s overnight delivery – that improve the efficiency of third parties

Answer 1

productivity growth between developed countries

business or public R&D spending; patents and patent citations

number of firm starts; aggregate income; VC and spillover effects in VC-cluster regions

Question 2

Government role in venture capital

Taxes
Tax rates for capital gains and carried interest have a …

Regulations framework
… can encourage VC activity with policies

Pension funds
Pension fund regulations that allow pension funds to … foster VC activity

Exit market
A healthy exit market e.g. public markets and appropriate incentives for … to go public lead to increased VC activity

Employee compensation/participation
Regulatory reforms of… for employees to incentivize start-up investments

Government subsidies
Government-backed venture capital involvement

Answer 2

large bearing on the level of VC investment activity

Stable and investment-friendly regulatory framework

commit funds to the VC industry

smaller firms such as VC-backed companies

promoting stock options

Question 3

The financing gap – Explain it.

Answer 3

In europe, capital is only in limited availability compared to the US.