Venture Capital in Europe: Evidence-Based Insights About Venture Capitalists and Venture Capital-Backed Firms

Venture Capital in Europe
Evidence-based insights about Venture Capitalists and venture capital-
backed firms
Bellucci, Andrea
Gucciardi, Gianluca
Nepelski, Daniel
2021
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EUR 30480 EN
This publication is a technical report by the Joint Research Centre (JRC), the European Commission’s science and knowledge service. It aims
to provide evidence-based scientific support to the European policymaking process. The scientific output expressed does not imply a policy
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Contact information
Name: Bellucci, Andrea; Gucciardi, Gianluca
Address: Via E. Fermi, 2749, TP58, I-21020 Ispra (VA), Italy
Email: [email protected]; [email protected]
EU Science Hub
https://ec.europa.eu/jrc
JRC122885
EUR 30480 EN
PDF ISBN 978-92-76-26939-7 ISSN 1831-9424 doi:10.2760/076298
Luxembourg: Publications Office of the European Union, 2021.
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How to cite this report: Bellucci, A., Gucciardi, G. and Nepelski, D., Venture Capital in Europe. Evidence-based insights about Venture
Capitalists and venture capital-backed firms, EUR 30480 EN, Publications Office of the European Union, Luxembourg, 2021, ISBN
978-92-76-26939-7, doi:10.2760/076298, JRC122885.
Acknowledgements
We thank the colleagues who commented on previous versions of this report, particularly
Serena Fatica, Florian Flachenecker, James Gavigan, Michela Nardo, Giuseppe Piroli, Blagoy
Stamenov and Giuseppina Testa. We further thank Issam Hallak and Frederic Metten for their
contribution on the construction of the dataset. We are also grateful to Alexander Borisov,
Luca Pennacchio and Alberto Zazzaro for their useful feedback on this work. This report is the
result of joint research by the authors. Nonetheless, Section 4.4 can be attributed to Bellucci,
Gucciardi and Nepelski, and all the other sections can be attributed to Bellucci and Gucciardi.
1
Contents
1. Introduction and motivations ............................................................................................... 8

2. Description of the database ............................................................................................... 10
2.1. VentureSource database ............................................................................................. 10
2.2. Venture capital investment types ............................................................................... 12
2.3. The match between Orbis and VentureSource ........................................................... 17
2.4. Key takeaways ............................................................................................................. 20
3. Overview of venture capital ............................................................................................... 21
3.1. The worldwide venture capital market ....................................................................... 22
3.2. Venture capital in the European Union ....................................................................... 25
3.2.1. Venture capital investors and target firms ........................................................ 25
3.2.2. Venture capital investments versus other sources of firms’ financing ............. 30
3.2.3. Venture capital investments by category of deals ............................................ 31
3.2.4. Venture capital investments by transaction currency ....................................... 33
3.3. Some further evidence on target firms and venture capital transactions based on the
matched database .............................................................................................................. 34
3.3.1. Venture capital investments and industrial sector analysis .............................. 34
3.3.2. Analysis of transactions ..................................................................................... 37
3.3.3. Significance of the investment to the target firm.............................................. 40
3.3.4. A first identikit of the targeted European Union firms ...................................... 42
3.4. Key takeaways ............................................................................................................. 45
4. The investment strategies of venture capitalists ............................................................... 46
4.1. Ownership in venture capital investments ................................................................. 49
4.2. Multiple stages of venture capital investments .......................................................... 51
4.3. Focus on corporate venture capital ............................................................................ 54
4.3.1. Strategies of corporate venture capital investors ............................................. 55
4.4. Public grants and venture capital investments ........................................................... 57
4.4.1. The evolution and geography of public grants and venture capital in the
European Union ............................................................................................................. 58
4.4.2. Analysis of public grants and venture capital funding ....................................... 61
4.4.3. Features of firms receiving both public grants and venture capital investments
64
4.5. Key takeaways ............................................................................................................. 68
5. The impact of venture capital on target companies .......................................................... 69
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5.1. Empirical strategy ........................................................................................................ 71
5.2. Baseline results ............................................................................................................ 72
5.3. Robustness checks ....................................................................................................... 73
5.3.1. Common trend assumption ............................................................................... 73
5.3.2. Placebo treatment ............................................................................................. 74
5.4. Heterogeneous effects ................................................................................................ 75
5.4.1. Age of the target company ................................................................................ 75
5.4.2. Round of investment.......................................................................................... 77
5.4.3. Type of investment ............................................................................................ 78
6. The definition of small and medium-sized enterprises and venture capital investments . 81
6.1. What are small or medium-sized enterprises? ........................................................... 81
6.2. Implications of European Commission definition of small and medium-sized
enterprises for venture capital and business angel investments....................................... 86
6.3. Case study: what if the thresholds change?................................................................ 88
6.4. Key takeaways ............................................................................................................. 91
References ............................................................................................................................... 92
List of boxes ........................................................................................................................... 103
List of figures ......................................................................................................................... 104
List of tables .......................................................................................................................... 107
Annexes ................................................................................................................................. 108
Annex 1. Further details on VentureSource and Orbis database matching ..................... 108
Annex 2. Overview of corporate venture capital ............................................................. 112
Annex 3. Further details of microsectors of companies receiving public grants ............. 120
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Executive summary
Policy context
The purpose of this report is to provide an overview of the recent trends in the venture capital
(VC) market in the European Union (EU). In particular, it investigates and documents the
characteristics of VC transactions, venture capitalists and VC-backed firms in the context of EU
small and medium-sized enterprises (SMEs). In recent years, the European Commission has
devoted increasing attention to this area through relevant policy actions aiming to stimulate
the adoption of different sources of external financing available to SMEs that face barriers to
more traditional financing. In particular, the 2015 capital markets union (CMU) action plan
included among its key objectives the financing of innovation, start-ups and non-listed
companies, including by supporting new VC investments. Moreover, the new 2020 CMU action
plan further incentivises the adoption of alternative sources of funding for SMEs (see, for
instance, Action 5).
The increase in VC penetration in the EU market would lead to at least two complementary
beneficial effects, i.e. the diversification of the funding portfolio of companies and
professional support in their earlier stages of development to new and innovative SMEs, the
backbone of the European economy. At the same time, being the target of a VC investment
could have implications for the SME status of the VC-backed company. The current European
Commission definition of SMEs (Recommendation 2003/361/EC) sets size-based thresholds
for a company to be considered an SME. If a firm is not autonomous, i.e. it is controlled by a
third party, the assessment of the size should also include the figures for other companies
within the same group as the assessed firm. Accordingly, if the VC investor acquires more than
50 % of the company’s capital or voting rights through its investment, the target company
itself and the VC investor are considered as a group and, consequently, these companies may
lose their SME status. Besides classifications, this may lead to a concrete impact on the VC-
backed firm, which, by losing SME status, would cease to be eligible for the European
Commission’s dedicated funding programmes (e.g. Horizon 2020).
The report focuses on various aspects of the status of the VC market from 2008 to 2018. In
particular, it provides evidence on (i) the development of VC investments; (ii) the most
significant features of VC transactions; (iii) characteristics of firms targeted by VC
investments; (iv) the impact of VC investments on measures of the growth of target
companies; (v) investment strategies of venture capitalists in targeting firms; and, lastly, (vi)
the implications of VC, and potential changes to the 50 % threshold, for the current definition
of SMEs.
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Key conclusions
The evolution of venture capital investments
VC investments significantly increased between 2008 and 2018, from EUR 30 billion to
EUR 380 billion worldwide. However, VC investments are not homogeneously distributed; US
and Chinese companies stand out as the main targets of VC investments (with approximately
80 % of the world value in 2018). EU firms lag behind them (with less than 10 % of the world
value in the same year). Within the EU, most of the deals and volumes invested still remained
limited to the top five countries (i.e. the United Kingdom, Germany France, Spain and
Sweden), accounting for approximately 80 % of the total. Looking at VC investors, it emerges
that the United States remains the main investor worldwide, whereas China replaced the EU
as the second global player in 2013–2018. VC investments are mainly allocated at the
domestic level (two thirds of the total) and just a fifth of all transactions takes place entirely
across borders, suggesting that the geographical proximity between venture capitalists and
VC-backed firms matters. Conversely, deals with multiple investors based in different
countries are on an upward trend worldwide (50 % of total investments). Adding together
single and multiple deals, 40 % of EU investments are in Member States other than that of the
investor, suggesting that a good level of integration of VC markets has already been achieved
within the EU. VC investment in EU target companies is concentrated in a few macrosectors
(e.g. research and development, pharma, information and communication technology), and
the euro is the most adopted currency for VC-backed transactions in EU. Focusing on the
investment rounds, VC early and later stages predominate over the other rounds, although
the latter are growing more rapidly. The VC early stages only doubled while the VC other
rounds tripled in volume between 2008 and 2018.
Investment strategies of venture capitalists

The analysis shows that, after having received a VC investment, most firms are still
independent (between 70 % and 80 % of cases). Only in fewer than 30 % of cases does a
different subject own the target company after the VC financing. In particular, the venture
capitalist becomes the ultimate owner of the target company only in fewer than 10 % of
cases. Other investors than the venture capitalist gain ownership in approximately 15–25 %
of cases. A sort of inverted U-shaped relationship emerges between the maturity of the
investment round and the share of venture capitalists aiming to own the target company.
After being negligible in the first rounds, VC-related ownership reaches a peak in the VC seed
and earlier stages, fading again in subsequent rounds. These results suggest that VC investors
do not seem to include the ownership goal among their reasons to invest. As a consequence,
the share of SMEs that would lose their status seems to be limited and concentrated among
relatively large and more mature firms that have access to later rounds. Multiple staging of
VC investors is also investigated. This analysis shows that a large proportion of firms receive
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more than one VC deal, and that VCs seems to invest in companies that have already raised
other deals.
Investment strategies of corporate venture capitalists

Corporate venture capital (CVC) is a non-exclusive instrument, which potentially integrates
other forms of VC. Indeed, approximately half of the firms raising CVC are also the targets of
VC. Moreover, CVC seems to be mostly associated with early and later stages of investments.
Focusing on firms receiving both CVC and other VC, it emerges that CVC investors increase the
median amount of their investment if the firms have already been targeted by other VC. This
provides some descriptive evidence of CVC as a quite flexible investment instrument,
relatively responsive to the investment history of the target company.
Public grants and venture capital investments

Since its introduction, the Horizon 2020 SME Instrument has become an important source of
public funding for SMEs, contributing 50 % of the total amount of public grants in 2017.
Among the firms analysed, approximately one third receive only public grants. The remaining
two thirds receive both grants from public entities and VC investments, showing that
European companies seeking external funding frequently make use of both public and private
sources of financing. For firms receiving public grants between 2008 and 2017, early stages
represent the most important source of VC funding, followed by VC later stages. Moreover,
there seem to be strong qualitative differences between firms receiving private and public
financing, in terms of size and age of the firms at the date of the funding.
The impact of venture capital on target companies

This report investigates the impact of VC investments on three measures of growth of the
target company common in the empirical literature, i.e. total assets, total sales and number
of employees. The main findings suggest that the first VC investment positively affects the
growth of target companies, in terms of both total assets and number of employees, while
mixed results emerge when looking at total sales depending on the empirical specification.
Exploring the potential heterogeneity of this impact, based on relevant features of the
transaction (i.e. round and type of the investment) and of the target company (i.e. its age),
this analysis confirms that results are heterogeneous and depend upon the features of target
companies (age) and transactions (round and type). First, younger firms benefit more than
older ones from VC transactions in terms of total assets, total sales and number of employees.
The effect on older companies is still positive but smaller. Second, CVC investments affect the
growth of only total assets, while investments from other VCs also have a positive impact on
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total sales and number of employees. Lastly, later rounds of VC investments show less impact
on the growth of target companies than early stages.
The definition of small and medium-sized enterprises and venture capital investments
The definition of SMEs varies between international organisations and countries, and in the
economic literature. At the same time, the definition of SME adopted by the European
Commission is an established reference for EU-based companies. This analysis proposes a
methodological approach to quantify to what extent the change in the threshold related to
the VC exception may have an impact on VC investments. Conditional on all limitations of the
analysis, findings suggest that a lower threshold for VC investments would affect a limited
number of firms.
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1. Introduction and motivations
Small and medium-sized enterprises (SMEs) are often referred to as the backbone of the
European economy, being an important source of jobs and economic growth. At the same
time, SMEs’ growth may be influenced by existing constraints on access to finance, in
particular in their earlier stages of development. For these reasons, the European Commission
has been working to stimulate the adoption of different sources of external financing available
to SMEs.
One of the identified policy actions included in the 2015 capital markets union action plan
consists in support to venture capital (VC). VC investments could constitute an important
alternative instrument for young and innovative firms that encounter barriers to more
traditional financing (e.g. bank loans) to have access to external funding. Despite its fast
growth in recent years, the European VC industry is still small, especially compared with the
United States (AFME, 2018). As also documented in the action plan, the limited role of equity
in the funding structure of firms may put Europe at a disadvantage with respect to economies
with more diversified funding portfolios, especially in the context of the needs for financial
restructuring after the COVID-19 pandemic (European Commission, 2020a).
At the same time, the fact that a European company raises VC may have implications for its
SME status. The current European Commission definition sets a threshold of 50 % (of a
company’s capital or voting rights) on investment by a single venture capitalist for this
company to be considered autonomous (Recommendation 2003/361/EC). In other words, in
the event of an investment by a single venture capitalist above 50 %, the company itself, the
venture capitalist and all the other companies in which the venture capitalist is the majority
investor are considered as a group and, consequently, these companies may lose their SME
status. The application of this definition has implications when assessing which enterprises
may benefit from EU competitive funding programmes aimed at promoting SMEs’ growth (e.g.
Horizon 2020 (H2020)).
Given the increasing policy relevance of SMEs and VC, this report aims to provide an overview
of various aspects of the status of the VC market, particularly in the context of EU SMEs, based
on a dataset presented in Section 2. After giving an overview of the development of VC
investments in the last decade, Section 3 explores some relevant features of VC transactions,
including the geographical distribution of investors and target companies, the currency, the
amounts and the duration, and also presents some heterogeneous evidence based on
different rounds of investments. Moreover, it analyses European firms raising VC
investments, focusing on relevant characteristics, such as size and the sector in which they
operate. Section 4 investigates the VC investors’ side, by focusing on how they set up their
investment strategies. In particular, this section tests whether or not venture capitalists invest
in companies by exchanging financing for equity stakes to gain ownership of them (i.e. more
than 50 % of the shares), to quantify the proportion of SMEs that could lose their status as a
8
result of VC investments. In addition, it analyses the patterns of public and private funding of
firms by comparing VC investments with public grants (including the H2020 SME Instrument).
Section 5 investigates the impact of VC investments on three measures of growth of the
target companies, i.e. total assets, total sales and number of employees, leveraging on an
empirical analysis.
Lastly, Section 6 presents and discusses the current definition of SMEs provided by the
European Commission. Specifically, this analysis compares it with similar definitions adopted
by the economic literature or by international organisations. Based on recent work by Crehan
(2020), this section discusses some possible limitations of the current SME definition and
proposes a methodological approach, complemented by a case study, to quantify to what
extent the change in the threshold related to the VC exception may have an impact on VC
investments.
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2. Description of the database
The highlights of this section are presented in Box 2.1.
Box 2.1. – Highlights of Section 2
▪ This section introduces and describes the dataset behind the

analyses of the whole report.
▪ We present the descriptions of different funding instruments
Highlights included in the database, on which we build our definition of VC.
▪ We provide some descriptive statistics and some preliminary
evidence on the development of VC in the last decade.
2.1. VentureSource database

The analyses of VC in the EU build on the Dow Jones VentureSource, a commercial database
that provides a comprehensive source of information on VC-backed companies, VC investors
and VC investment transactions, in every country, industry, sector and stage of development.
The analysis focuses on the period 2008–2018, in order to investigate the development of
more recent trends in VC.
Previous studies (Kaplan et al., 2002; Nepelski et al., 2016) have already provided a detailed
overview of VentureSource and a comparison with other commercial databases (e.g. Thomson
Venture Economics and Crunchbase) for a purpose similar to that of the current investigation.
At the time of their analyses, those authors showed that data from VentureSource were
generally more reliable and complete, and less biased, than similar databases. In particular,
they found that VentureSource was a more comprehensive data source, offering longitudinal
and standardised information on VC deals, with more detailed information on financed and
financing entities. Along these lines, Kuckertz et al. (2019) state that VentureSource is a
comprehensive data source, particularly when looking at VC deals completed in the United
States and Europe (1). For these reasons, we opted for VentureSource although alternative
databases are claimed to cover some particular types of investment better. For example,
Crunchbase has been considered more comprehensive than VentureSource for smaller deals
(Kaminski et al., 2019) and, particularly, for business angel investments (Gvetadze et al., 2020).
(1) More recently, alternative databases have been adopted for analyses at the worldwide level, for instance Zephyr from Bureau van Dijk
(Bellucci et al., 2020a,b), Dealroom (Kraemer-Eis et al., 2020) and CB Insights (Howell et al., 2020) which recently acquired
VentureSource from Dow Jones. See further details at the following link: https://www.cbinsights.com/research/team-blog/dow-jones-
venturesource-valuations/. For a comparative analysis of commercial databases on venture capital, we refer to Retterath and Braun
(2020).
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VentureSource clusters the available data into three groups of information: (i) the venture-
backed company’s name, contact details (i.e. address, geographical location, website, email,
telephone, fax number, contact points within the company), sector of activity and some
financial variables at the date of the deal such as the number of employees, the total assets,
the total turnover and the total liabilities; (ii) the name and contact information of the investor
entity (i.e. address, geographical location, telephone, fax number), the type of entity and co-
investors, if any; (iii) the VC deal (2) (i.e. the amount, the deal date, the type of investment, the
currency and currency exchange rates). Hence, full information on each transaction can be
obtained by merging the information sets available for the three entities separately.
For the purpose of this study, we exploit the VentureSource database considering VC-backed
companies as the primary target of analysis. Depending on the focus of investigation, we
alternatively conduct the analysis by aggregating the information about companies at a point
in time and at the level of country, sector or type/round of investment.
The geographical coverage of the current analysis focuses on VC-backed companies located in
the EU (see Figure 2.1). To complement the analysis, the development of European VC
investments is compared with the most important extra-EU countries in terms of volumes and
numbers of deals (i.e. Canada, China, India and the United States).
One of the limitations of VentureSource is its definition of industrial sectors, which does not
correspond to any other official statistical classification of economic activities, such as the
Statistical Classification of Economic Activities in the European Community (NACE) codes (3).
Furthermore, VentureSource provides limited financial information on target firms and
related to only the year of the VC investment. The historical series covering data before and
after the transaction is not available, with a considerable impact on any investigation of the
impact of VC investments on targeted firms.
(2) Throughout the report, we refer to the number of deals (and related amounts) including both disclosed and undisclosed transactions.
We alternatively refer to VC deals as VC transactions.
(3) In Section 3, we overcome this issue by assigning the economic activities based on the NACE codes of target companies extracted from
Orbis. An alternative reclassification of VentureSource sectors has recently been adopted by Flachenecker et al. (2020).
11
Figure 2.1. – Comparison of deals/volume by EU countries: number of deals (left), VC
investment raised (right), total 2008–2018
Source: JRC elaborations of VentureSource data.
2.2. Venture capital investment types

Venture capitalists provide financing at various stages of companies’ life cycles through
different investment types – also defined as investment stages or funding rounds – generally
calibrated to the stage of growth of the targeted company. This analysis applies the
classification of investment types provided by VentureSource (4). As a result, it considers as VC
investments the following funding types: accelerator, business angel, VC seed, VC early stages,
VC later stages, recapitalisation, corporate equity or CVC, and venture leasing. At the same
time, we have not included within the VC category all the deals that do not fit the standard
definition of VC (5). Nevertheless, we exploit the presence of deals such as mergers and
acquisitions (M&A), initial public offerings (IPOs) and buyouts as signals of an exit strategy (6)
occurring in the company analysed at a certain date. Lastly, our dataset also includes public
grants, which are used for a dedicated analysis (7). Box 2.2 provides concise definitions of the
VC funding instruments considered in this report.
(4) Strictly speaking, there is no one classification of funding rounds common to all specialised alternative databases. The differences are
mainly attributable to alternative categorisations of funding rounds (e.g. VC 1st, VC 2nd) into different categories of investment stages
(e.g. VC early stage, VC later stage).
(5) For instance, investments focused on the scaling-up of more established companies (e.g. private equity or debt).
(6) Specifically, we assume that deals signalling that a company went public (through an IPO) or changed its ownership (through a merger
or acquisition or a buyout) constitute possible exits from a VC investment with a cashout for the venture capitalist (Isaksson, 2007).
(7) A definition of public grants based on the VentureSource database is presented in Section 4.
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Box 2.2. – Definitions of funding instruments
Funding instrument Definition

Accelerator It generally provides capital financing and mentorship to new start-
ups for a predetermined period of time in exchange for seed equity.
Accelerators typically operate by inviting several early-stage start-
ups to a cohort-based programme, in order to develop their
technologies and products with the aim of helping them to kick off
their productive and commercial activities.
Business angel Unlike most of the other funding instruments, this instrument is
typically adopted by individual investors, who allocate their own
private funds in the initial development phase of a start-up. These
investments help new start-ups to transform ideas into viable
companies, kick off the production or launch the proposed service.
Business angels tend to invest in businesses or sectors they have
experience with, and they generally provide mentoring to the
entrepreneurs together with funds.
Seed Seed rounds provide financing for research activities, or for the
assessment and development of an initial concept before the
business reaches the start-up phase, usually within 1 year from the
incorporation of the company. Typically, in this phase, both the
founders and the product developers sit on the board of the
company and a complete management team is not yet in place.
Early stages This refers to the financing of companies in the first and second
rounds, after the seed phase. Start-ups are provided with this type of
financing for the development of products and the definition of
market strategies and sales channels. Companies may be in the
process of being set up or may have been in business for a short
period of time but have not started the commercialisation of their
products or services. In the venture capital jargon, these rounds are
also known as Series A and Series B.
Later stages This refers to all financing rounds subsequent to the second round.
Later stages financing is provided by venture capitalists for the
expansion of more established and operating companies, which may
or may not be breaking even or trading profitably. Generally, later
stages are rounds used by venture capitalists to finance already VC-
backed companies. In the VC jargon, these rounds are also known as
Series C and Series D.
Recapitalisation These venture funding rounds (recap 1st, recap 2nd, recap 3rd, recap
later and recapitalisation) are granted to start-ups with still high
growth potential after a restart activity. Venture capitalists make use
of these rounds to exclude existing investors who do not participate
13
in restart rounds, unless they intend to invest further, leading to
important changes in the firm’s business strategy.
Corporate venture CVC, sometimes also called corporate equity, is an investment made
capital by a corporate company, rather than an institutional venture
capitalist, in another company, such as a start-up. The investment
might take the form of a transfer of funds or of know-how. This kind
of investment is not necessarily done for the purpose of forming
strategic partnerships but might aim at acquiring access to
prospectively disruptive technologies, which could guarantee entry
to new emerging markets.
Venture leasing This refers to the leasing of technical equipment by a venture-leasing

broker to pre-profit start-ups funded by VC investors. The aim of this
kind of investment is to help young companies to acquire all the
technical equipment necessary for their growth.
Source: JRC elaborations from Nepelski et al. (2016).
Altogether, these types of investment might be clustered based on two elements: the nature
of the investor (i.e. individual, corporate or institutional (8)), and the phase of the life cycle of
the company in which the investment is typically raised. This exercise is depicted in Figure 2.2.
Figure 2.2. – Relationship between types of VC investors and stages of company’s life
Some important aspects should be considered and clarified. First, this graphical
exemplification does not imply that any VC-backed company receives each of the investment
rounds and types. For instance, it may be the case that a company raises only one of these
deals. Moreover, typically only a fraction of firms raising early-stage investments get access to
subsequent rounds. Second, each company follows its own story. While this is the typical
(8) In this report, we follow the definition of Gompers et al. (2020), who distinguish between institutional and corporate VC. Institutional
VC corresponds to all professional VC firms whose core activity is the management of funds to be invested in companies with high
growth potential. Institutional venture capitalists differ from individual investors in their legal nature (i.e. firm vs individual), and from
corporate venture capitalists in their entrepreneurial goals (i.e. VC investments are not the core activity of corporate venture
capitalists). Based on an alternative definition, Maula et al. (2005) refer to institutional VC as independent VC.
14
chronological order of VC investments, it may be the case that, for instance, some firms
receive first CVC and then an accelerator investment. Third, for institutional investors the link
between the round and the phase of company’s stage of development is more direct.
Conversely, business angel and CVC investments are more likely to be received at different
stages, although usually the first precedes the second.
Figure 2.3 presents the contributions of different VC investments worldwide in terms of
volumes and numbers of deals. The figure shows that the investment volumes of worldwide
VC-backed companies significantly increased in the most recent years of the sample. VC early
and later stages are predominant over the other forms of investments. However, looking at
the growth rate, it emerges that VC later stages tripled their volumes whereas VC early stages
only doubled theirs from 2008 to 2018. At the same time, when looking at the number of
deals, the percentage contribution of later stages is lower, while it is conversely higher for
early stages. A substantial increase is also visible for VC seed and business angel investments.
Figure 2.3. – Contributions of different VC-backed instruments to the total at the worldwide
level, 2008–2018 (billion EUR (left) and number of deals (right))
Source: JRC elaborations on VentureSource data.
The joint interpretation of these results suggests that companies that have access to seed,
business angel and early stages of VC investments participate in significantly more deals
than those receiving only later stages of VC investments. At the same time, the latter type of
companies receives significantly larger financing volumes, suggesting that investors are
moving their portfolios’ investments towards more consolidated businesses that require
further capital injections to reinforce their development and growth (9).
(9) Another possible interpretation is that investors are moving towards less risky investments.
15
Figures 2.4 and 2.5 show the contribution of different VC investments in terms of volumes and
number of deals for the United States and China, respectively, the two biggest countries
hosting VC deals.
Figure 2.4 displays the contributions of different VC investments in the United States in terms
of volumes and number of deals. The figure shows a similar dynamic to that depicted in
Figure 2.3. In terms of volumes, the investments in VC-backed companies significantly
increased in the most recent years. VC early and later stages are still the predominant forms
of investment. However, when looking at the number of deals the contribution of early stages
is sharply growing compared with the others.
Figure 2.4. – Contributions of different VC investment instruments to the total, United States,
2008–2018 (billion EUR (left) and number of deals (right))
Figure 2.5 depicts the contributions of different VC investments in China in terms of both
volume and number of deals. The dynamic of China in terms of absolute volumes of
investments is comparable to that of the United States since 2016. In relative terms, VC early
stages and later stages are still the predominant forms of investment, although the latter
experienced a sharper increase in volume than the other forms of investment. At the same
time, when looking at the number of deals, the percentage contribution of early stages of
investments is greater, while it is lower for later stages despite growing at a faster rate. The
interpretation of these results suggests that Chinese companies that attract early and later
stages of VC investments participate in significantly more deals and higher volumes than those
that receive other types of instruments. However, later stages seem to attract investment
volumes at a faster rate than other instruments. This finding may suggest a reorganisation of
the portfolios’ investors towards businesses that require incremental capital investments to
consolidate their growth.
16
Figure 2.5. – Contributions of different VC-backed instruments to the total, China, 2008–2018
(billion EUR (left) and number of deals (right))
2.3. The match between Orbis and VentureSource

Besides VentureSource (used in Section 3), the report builds on a matched database
(hereafter, the matched DB), mainly aiming to analyse in greater detail the investment
strategies adopted by venture capitalists (Section 4) and the impact of VC investments on
targeted companies (Section 5) in the period 2008–2017 (10).
The matched DB links two commercial databases, i.e. VentureSource (described in Section 2.1)
and the Bureau van Dijk Orbis database (hereafter, Orbis). Whereas VentureSource provides
information on the contract terms of the VC financing, Orbis supplies financial and industrial
figures taken from balance sheets gathered from business registers, credit bureaux, statistical
offices and company annual reports for each accounting year. Evidence of the advantage of
using Orbis over similar commercial databases has been described by Kalemli-Ozcan et al.
(2015). In particular, they state that Orbis provides harmonised balance sheets and profit and
loss data with significant coverage of private companies, together with a more detailed
industry classification (NACE four-digit codes). For each VC-backed company the matched DB
associates the contract terms of the deal (i.e. the amount, the deal date, the type of
investment or the funding round, the currency, and the name and geographical location of the
venture capitalist(s)) with the financial information about the VC-backed company available
from the balance sheet in Orbis (e.g. total assets, total debt, turnover, number of employees,
sector). Orbis and VentureSource do not cover exactly the same firms. In addition, despite its
large coverage, Orbis does not provide financial statements for some new companies and
SMEs included in VentureSource. Indeed, many SMEs do not disclose a financial report on
their business in the first stages of activity, and some of them may end their business after
(10) The series ends in 2017 because of data availability constraints at the time of the merger of the VentureSource and Orbis datasets.
17
having received early-stage financing. Hence, the matched DB is a subset of the information
available in VentureSource. Below, a brief illustration of the procedure to obtain the matched
DB is presented. For a more exhaustive description we refer to Annex 1.
VentureSource and Orbis do not provide unique identifiers for an immediate reciprocal direct
link of the data. Consequently, we merged the data from Orbis (txt/flat files) with those from
VentureSource by matching common variables to both databases containing other univocal
company information, i.e. web address, telephone number, email address, fax number and
later company name (11).
The matched DB has been converted into a panel database, where the identifier refers to the
VC-backed company with financial information for each year of the sample period (2008–
2017) and with information on the VC investment in the year of the deal. Table 2.1 provides
descriptive statistics about the main variables.
Table 2.1. – Descriptive statistics about the main variables
Standard
Variable Observations Mean Median Minimum Maximum
deviation
Total assets
113 736 70 132 3 932 952 975 0 88 500 000
(thousand EUR)
Total sales
84 767 42 160 3 856 346 313 0 28 600 000
(thousand EUR)
Employees
88 517 226 27 2 374 0 162 650
(number)
Total debt
107 884 21 434 296 282 783 0 30 700 000
(thousand EUR)
VC amount
92 710 11 600 1 657 85 900 0 3 310 000
(thousand EUR)
Source: JRC elaborations on the matched DB.
The matched DB contains 207 050 observations overall (20 705 yearly observations).
Figure 2.6 provides information on the frequency of different investment types in the
database.
As shown in the left panel of Figure 2.6, the largest number of the deals (43 %) can be
categorised within our definition of VC. Other major categories include private equity and
other equity investments (27 %), all the possible exit strategies (18 %) and grants (4 %). As
expected, most of the analyses included in this report will be based on the deals included in
(11) For a more exhaustive overview of the database, summary statistics about Orbis txt/flat files and the success rates of linking
VentureSource and Orbis, we refer to Tables A.1.1 and A.1.2 in Annex 1.
18
the VC category. At the same time, other sections of the database are explored for ad hoc
inquiries (i.e. exit strategies) or investigations (i.e. public grants). Lastly, within the VC
subcategory (see the right panel of Figure 2.6), most deals are concentrated in the early (59 %)
and later (15 %) stages.
Figure 2.6. – Distribution of instruments in the matched DB
19
2.4. Key takeaways
The key takeaways of Section 2 are brought together in Box 2.3.
Box 2.3. – Key takeaways of Section 2
▪ The report builds on two datasets: the first (based on Dow Jones
VentureSource) used for broader descriptive analyses (Chapter 3),
and the second (based on a match between VentureSource and
Orbis) used to investigate the relationship between VC investors
and target firms (Chapters 3 to 6).
▪ Our definition of VC includes the following funding instruments
available in VentureSource: accelerator, business angel, seed,
early stages, later stages, recapitalisation, venture leasing and
Key takeaways CVC.
▪ Most of the transactions included in the matched DB may be
classified as VC investments (43 %) according to our definition,
while the others mainly fall into the private equity (27 %), debt
(5 %) and grants (4 %) categories.
▪ Most of the VC transactions in the database fall into the early
stages (59 %) and later stages (15 %) categories, while seed,
business angel, CVC and accelerator investments account for
about 10 %, 9 %, 5 % and 3 %, respectively.
20
3. Overview of venture capital
This section describes the main features of VC investments, both on a worldwide scale and
with a focus on the EU. Specifically, the analysis of VC is conducted on the two datasets
described in Section 2. The first is VentureSource, which collects information on VC
investments (e.g. seed, early stages, later stages), the geography of VC-backed firms and the
country of origin of venture capitalists on a worldwide scale, with data up to 2018. The second
is the matched DB, which focuses on VC-targeted firms located in the EU Member States (12)
in the period 2008–2017. The matched DB allows us to investigate other relevant aspects of
VC-backed firms, on which the analyses in the subsequent sections are built.
The analyses are conducted at the levels of both the VC-backed firms and the VC investors
(venture capitalists). In several cases, whenever relevant, findings are aggregated at the
country level (13). In this case, for the sake of clarity, we identify as ‘target country’ the
aggregate of all firms based in that country that are targets of VC investments. At the same
time, ‘investor country’ is defined as the aggregate of all investors (i.e. the venture capitalists)
based in such country.
The highlights of this section are reported in Box 3.1.
▪ This section is an overview of VC investments at the worldwide

level, and with a focus on the EU Member States.
▪ It explores some relevant characteristics of the VC transactions,
including their geographical distribution (on the parts of both the
investor and the target company), currency, amounts and
Highlights
duration, and presents some heterogenous evidence based on
different types/rounds of investments.
▪ It proposes a first identikit of the European companies raising VC
investments, based on their industry and dimensions in the year
of the transaction.
(12) All the analyses conducted on the EU (as an aggregate and by Member State) also include the United Kingdom, which was a Member
State in the period analysed.
(13) We use information from VentureSource to determine the place of origin of both the investors and targets. However, the place of
origin of the VC investor completing the transaction may not coincide with the place of origin of its global ultimate owner (GUO), which
is not extensively available in our dataset. This may be a potential source of bias in the geographical attribution of transactions for
those investors that are not independent (i.e. the GUO is not the VC investor completing the transaction). For example, we would
consider European any transaction completed by a legally registered EU subsidiary of an extra-EU VC investor. A similar disclaimer
applies to target firms.
21
3.1. The worldwide venture capital market
Figure 3.1 shows the development of VC investments at the worldwide level, broken down by
target country. A number of comments are in order.
Figure 3.1. – Worldwide distribution of VC activity by target country (volumes and

percentages), 2008–2018
First, VC investments significantly increased between 2008 and 2018, from EUR 30 billion to
EUR 380 billion.
Moving to the country-level analysis, two main pieces of evidence emerge. First, only a few
countries host firms attracting VC investments. Indeed, the top three (groups of) countries
(i.e. the United States, China and the EU) account for at least 80 % of total investments raised
in the whole period, while adding Canada and India to the picture accounts for more than 90 %
of all the VC investments.
Second, the volume of VC investments increased in all major target countries. For instance,
in the United States volumes increased from about EUR 20 billion to more than
EUR 150 billion, in China from EUR 2 billion to about EUR 150 billion and in the EU-28 from
EUR 4 billion to EUR 28 billion. Nevertheless, although growth is widespread among all major
target countries, most of this increase coincided with the significant penetration of venture
capitalists’ investments into the Chinese market. Whereas in 2008 Chinese firms received less
than 10 % of global VC investments, this share reached around 40 % in 2018, a similar
amount to that raised by US firms. This change accounted for an impressive 60-fold growth,
compared with the much more contained – although significant – US and EU ones (both
around a factor of seven). Altogether, firms targeted by VC investors are concentrated in a
few countries, and this concentration is becoming even more evident, with the United States
and, in particular, China emerging as the main targets and the EU still lagging behind them.
22
If the number of target countries receiving most VC investments is limited, the concentration
of investments is further confirmed when we look at the investor countries.
Figure 3.2. – Worldwide distribution of VC activity by investor country (volumes and

percentages), 2008–2018
Figure 3.2 shows the change in volumes invested by investor countries worldwide during the
period under analysis (14). Specifically, the left panel describes the volumes invested in
absolute terms (i.e. expressed in billion euro), while the right panel compares the
contributions of the various countries to the total in terms of percentages. In addition to the
categories associated with the investor countries, we have also created a category tagged as
‘Mixed’. It is attributed to all VC investments jointly completed from investors based in two or
more different countries (15) (i.e. pool of investments). In the rest of the cases, investments by
either an individual or a pool of VC investors based in the same country are attributed to a
single country.
As expected, on the investing side too the main players are the United States and the EU in
the first sample years (2008–2012), and the United States and China in the later years (2013–
2018). Moreover, all investor countries increase their exposure over time, although at
different paces. China grows faster than the United States, which, in turn, grows at a higher
rate than the EU.
Importantly, deals with multiple investors based in different countries are also on an upward
trend, accounting for almost 50 % of total volumes of investment in the most recent years, up
(14) The sum of invested volumes is slightly lower than that of target countries. In some cases our dataset does not contain information
about the investor country, while providing information about the target country. However, missing data appear to be random across
different countries and years. In addition, the two historical series essentially show the same trend in the sample period.
(15) For instance, if a US-based investor and a Chinese investor make a joint VC investment in a UK-based company, their investment will
fall within the ‘mixed’ category. The same rule applies to investors from any one EU Member States and not from the EU as whole.
23
from about 30 % in the first sample years. Although it is not possible to unequivocally assign
these investments to a single country, nevertheless we can investigate the frequency with
which the main players appear among the investors, with the aim of understanding how far
their area of influence in the global VC business is extended.
Looking at the number of deals, the United States, China and any one of the EU Member
States appear as one of the investor countries in approximately 70 %, 14 % and 22 % of the
mixed deals, respectively. Interestingly, while US venture capitalists seem to collaborate
similarly with EU (16) and Chinese ones (20 % and 16 %, respectively, of the total mixed deals
with a US partner are jointly completed with them), EU venture capitalists cooperate more
frequently with US (67 %) than Chinese (4 %) ones. Lastly, all three of these investor (groups
of) countries have collaborated on only a limited number of investments (1 % of the mixed
investments).
After having observed the behaviour of target and investor countries separately, the analysis
focuses on the relationship between them. In particular, it is useful to understand how much
of the total VC investment made by a country is intended for target companies on the
domestic market and, conversely, how much is intended for the foreign market. While public
policies to promote the dissemination of VC investments are generally designed to encourage
the development of alternatives to bank financing for domestic firms, investors could in
principle allocate part of the public resources abroad, in the absence of constraints on the
allocation of funds. Figure 3.3 shows the distribution of VC investments by origin of
investment.
Figure 3.3. – Distribution of VC investments by origin of investment (domestic, abroad, and
mixed), 2008–2018
(16) Notably, mostly with the United Kingdom (62 %), Germany (24 %) and France (12 %).
24
VC investments are mainly allocated at the domestic level (approximately 66 % of the total),
i.e. the investor(s) and target firm are based in the same country. At the same time, just over
a fifth of all transactions take place entirely across borders, i.e. the investors are all foreign
with respect to the target firm. Interestingly, more than 10 % of investments are made
through joint ventures (JVs) between domestic and foreign investors. In other words, VC
investment is completed in pools by investors in several countries, including the target country
of the transaction.
However, this result seems to be quite heterogeneous among the different investor countries.
If we compare the shares of US-based and Chinese investors, we find that US-based firms
receive funds almost exclusively from domestic VCs (about 80 % in terms of number of deals)
or from domestic/foreign JVs (approximately 10 %), while 56 % of Chinese firms receive
investments from Chinese VCs and 14 % from domestic/foreign JVs, with a higher proportion
of foreign investors. Nevertheless, the share of foreign investments in China declined rapidly
in the most recent years, from around 60 % (in 2008) to about 28 % (in 2018).
Regarding the single EU Member States, we note that the level of VC investments from
abroad is higher than in the United States (i.e. 24 % vs 9 %). However, these findings do not
discriminate the fact that many of the EU Member States’ VC deals take place within the EU,
which is a sign of the integration of the EU market. We discuss this in detail in the next section,
focused on the EU.
3.2. Venture capital in the European Union

Using the VentureSource database, this paragraph focuses on VC investment in the EU
Member States.
3.2.1. Venture capital investors and target firms

Figure 3.4 shows the cumulative investment volumes and numbers of deals raised by firms
that are based in one of the EU Member States. The darker the colour assigned to the country,
the more the investments raised, in terms of amount (left panel) or number of deals (17) (right
panel).
Cumulatively, firms in the EU countries received different absolute levels of VC investments.
Most of the investments are focused on a limited number of countries, mainly the United
Kingdom, France and Germany. The results are substantially confirmed when looking at the
numbers of the deals.
(17) The DB includes a set of deals for which the invested amount is not available. Consequently, they are considered in the calculation of
only the number of deals.
25
Figure 3.4. – Target country for VC investments: cumulative investment volumes and number
of deals raised by firms based in EU Member States, 2008–2018 (billion euro (left) and number
of deals (right))
Figure 3.5 confirms that the polarisation of VC investments observed at the worldwide level
also occurs within the EU.
Figure 3.5. – Target country for VC investments: changes in investment volumes and numbers
of deals raised by firms based in EU countries, 2008–2018 (%)
This phenomenon appears similar based on the amounts (left panel) and the numbers of deals
(right panel). On average the contribution of the top five countries (i.e. the United Kingdom,
Germany, France, Spain and Sweden) accounts for approximately 80 % of the EU
investments, and that of the top 10 accounts for more than 90 % in the whole sample period.
26
At the same time, interestingly, the number of countries receiving VC investments started to
increase in the most recent years of the sample (in the category ‘Others’). Based on the
matched DB, at the beginning of the sample period (2008) only 20 of the EU Member States
were targets of VC investments, whereas all 28 were at the end of 2018.
Looking at the underlying transaction data, it emerges that in some circumstances single large
operations may affect countries’ overall results. For instance, this is the case of the 2012 UK
peak, which basically depends on two large CVC deals, accounting for a total of
EUR 1.5 billion (18). These peaks in volume are clearly not accompanied by the same
proportional increases in the number of deals; hence, a simultaneous investigation of both
graphs might shed light on whether an increase is in some way structural (volumes grow
together with the number of deals) or more volatile.
We now investigate how EU-based venture capitalists invest worldwide. Figure 3.6 shows the
amounts invested and number of investment deals performed by venture capitalists based in
the EU.
Figure 3.6. – Investor country for VC investments: cumulative investment volumes and
number of deals performed by venture capitalists based in the EU, 2008–2018 (billion euro
(left) and number of deals (right))
Looking at the geographical locations of investors (Figure 3.6), it emerges that the bulk of VC
investment originates from the United Kingdom, France and Germany, in terms of both
amounts (left panel) and number of deals (right panel). Interestingly, this is the mirror image
(18) These are Qatar Holding LLC acquiring a stake in Heathrow (SP) Ltd. and Bright Food Group Co. investing in the UK cereal company
Weetabix Ltd.
27
of the evidence in Figure 3.4 showing that most of the investments were focused on the same
limited number of countries.
This evidence may suggest two findings. First, a large proportion of VC investments may be
completed within domestic borders, which is in line with what emerged in Figure 3.3. This
dynamic might also mean that the geographical proximity between venture capitalists and
VC-backed firms matters. In particular, the same institutional and socioeconomic background,
as well as the same language and culture, might reduce uncertainty, facilitating the
investment. Second, financial markets that are mature enough to host a plethora of venture
capitalists are also keener to receive VC investments.
Figure 3.7. – Investor country for VC investments: changes in investment volumes and
numbers of deals raised by firms based in EU Member States, 2008–2018
Figure 3.7 shows that the polarisation among EU countries observed in terms of VC
investments raised is even stronger when looking at investor countries. In terms of absolute
volumes, the contribution of the top three Member States (i.e. the United Kingdom, France
and Germany) accounts for up to 80 % of the EU investments, and all the other 25 countries
account for the residual 20 %. Moreover, the distribution of volumes across countries does
not substantially change over the sample period, with only limited temporary adjustments
(i.e. in 2009–2010 and 2016).
Although the results are slightly different when focusing on the number of the deals, with a
relatively higher contribution from the other economies (accounting for approximately 40 %
of the total in 2018), the overall structure of the contributors does not substantially change
and the contribution of the top three Member States accounts for up to 60 % of the EU deals.
Nevertheless, the category grouping the other countries (‘Others’) shows a slight increase in
the most recent years of the sample, especially in number of deals, moving from less than 5 %
in 2008 to more than 10 % in 2018.
28
As already described at the worldwide level, we now analyse the origin of investments
received by EU firms, looking at the relationship between the investor and target countries.
This analysis allows us to investigate the share of investments made by EU venture capitalists
in the domestic, EU, and foreign markets. Hence, we apply a similar approach to the one
adopted at the worldwide level, with the difference that we distinguish foreign flows into
those from other EU Member States and those from non-EU countries. As a result, all VC
investments were categorised as shown in Table 3.1.
Table 3.1. – Origin of the VC investments by category

Deals Single Multiple
Domestic Domestic
(if all venture capitalists are
Investor country = target country
from the target firm’s
country)
EU origin Abroad: from EU Abroad: JV within EU
Investor
country ≠ target Non-EU origin Abroad: from non-EU Abroad: from non-EU
country
Both Not applicable Abroad: JV EU/non-EU
Source: JRC elaborations.
Looking at the case of single investors (column 2), the attribution is straightforward: the
investment is tagged as ‘domestic’ if the investor country and the target country coincide;
otherwise, it is considered to be from ‘abroad’. In this latter case, we also distinguish between
flows coming ‘from EU’ and ‘from non-EU’ countries.
Moving to the multiple investors case (column 3), if the investment is by venture capitalists
based in the same country, we have tagged the investment as domestic. If the investment is
by venture capitalists located in different countries, then three possibilities may occur. The
investment can take place (i) from countries all located within the EU borders; (ii) from
countries all located outside the EU; (iii) from some countries located in the EU and some
others outside the EU. Figure 3.8 shows the results of this categorisation as a percentage of
total VC investments.
As is apparent, on average approximately 45 % of investments come from venture capitalists
who are based in the same country as the target firms. However, adding up single and multiple
deals (i.e. ‘Abroad: from EU’ and ‘Abroad: JV within EU’) it emerges that about 40 % of
investments are from EU Member States other than the domestic ones. This result suggests
a good level of integration of VC markets already achieved within the EU, in particular
compared with the inflow of investments from non-EU countries (between 5 % and 10 % in
the sample). Interestingly, a growing share of the investment originates from JVs between EU
and non-EU countries, moving from 8 % in 2008 to 11 % in 2018.
29
Figure 3.8. – Origin of the VC investments by category, 2008–2018 (% of total investments)
3.2.2. Venture capital investments versus other sources of firms’ financing

In order to better interpret the relevance of the VC instrument, it is useful to parameterise
the volumes of VC financing with respect to a measure that constitutes the main source of
firms’ financing, i.e. bank loans. Accordingly, we created the ratio between the cumulative VC
investments and outstanding loans to non-financial corporations (NFCs) by country in the
sample period, as shown in Figure 3.9.
Figure 3.9. – Cumulative investment volumes as a percentage of cumulative NFC loans, 2008–
2018
Source: JRC elaborations on VentureSource and Eurostat data.
30
This ratio is a measure of the ability of firms to opt for other financial instruments than bank
loans (Gucciardi, 2019). It is therefore a proxy for the relative importance of VC investments
in the financial structure of companies. A darker colour corresponds to countries where VC
financing is more widespread as an alternative to NFC loans.
Not surprisingly, a correlation emerges between the absolute level of VC investments and
their ratio to loans. In other words, countries with higher levels of VC investments also show
a larger VC presence in loans. Nevertheless, on the one hand some smaller economies
experience a significant amount of VC (e.g. Estonia, Cyprus and Lithuania), while on the other
hand larger economies lose some relative positions within this setting (e.g. Spain and Italy).
Therefore, in these latter cases, despite a larger absolute diffusion, the VC market may not
have reached the level of maturity to be considered a credible alternative to bank loans.
3.2.3. Venture capital investments by category of deals

The following figures describe the most recent changes in VC diffusion within the EU, and also
provide a breakdown by VC instrument type.
Figure 3.10. – VC investments (volumes) raised in the EU by investment type, 2008–2018

(billion euro (left) and % of total investments (right))
Altogether, Figure 3.10 shows a substantial growth in volumes starting from 2009, and a
particularly significant increase in 2017 compared with 2016. The abrupt acceleration in 2017,
following a decrease in 2016, was mainly driven by later-stage investments.
Moreover, it emerges that the instruments covering the VC early and later stages are
predominant in terms of volumes. On average, the two add up to about 90 % of the total
amounts. The composition of VC investments raised by the different investment types is
substantially stable over the period, although we observe a relative growth in instruments
31
such as CVC (19) (with a peak in 2012, due to a limited number of deals) and business angels
(since 2015). Interestingly, the percentage contributions of the early and later stages of VC
investments seem substantially equal and constant over time (they both account for around
40 % in the whole period with the exception of 2012).
The distribution of the number of deals across all different VC instruments is shown in
Figure 3.11.
Figure 3.11. – VC investments raised in the EU, by investment type, 2008–2018 (number of
deals (left) and % of deals (right))
VC early and later stages are still predominant over the other forms of investment, even
though the sum of the two accounts for about 80 % of the total (vs 90 % of the volumes).
Moreover, the number of VC early stages is always significantly larger than that of VC later
stages. At the same time, when looking at the number of deals, the percentage contribution
of CVC investments is lower, while it is higher for accelerators, business angels and VC seed
(with growth emerging in the last years of the sample).
The joint interpretation of this evidence suggests that firms that access later stages of VC
investments are significantly fewer than those receiving only early stages of VC. At the same
time, the former type of firms receives significantly larger investment volumes. On the one
hand, this may be related to firms’ increasing financial needs at later stages. On the other
hand, venture capitalists may prefer to invest more at later stages, since companies then have
a higher likelihood of success (Dahiya and Ray, 2012).
(19) Corporate Venture Capital (CVC), also called as Corporate Equity in the VentureSource database.
32
3.2.4. Venture capital investments by transaction currency
This paragraph documents the currencies in which the investments in the EU are performed,
to see whether or not investments are completed using EU currencies.
Figure 3.12. – Currency of VC investments as a percentage of total investments in the EU,

2008–2018
Figure 3.12 shows that the euro is the most adopted currency in VC transactions in the EU,
although in more recent years the US dollar has been gaining importance in relative terms.
Specifically, the euro is the absolute reference currency (i.e. > 50 % of amounts and deals) in
the period 2008–2010, while in recent years it maintains this status only by number of deals.
Comparing the number of deals and the amounts, it emerges that the transactions made in
US dollars are on average larger in volume, especially in the more recent years.
Nevertheless, if the same phenomenon is observed in only the euro area (as in Figure 3.13) it
emerges that the number of investments made in euro is always more than 80 % of the total,
while the remainder is substantially composed of transactions completed in US dollars.
Looking at the VC-backed amounts, we note that on average 70 % are in euro, although a
reduction in favour of the US dollar is also observed in this case in the last 2 years.
33
Figure 3.13. – Currency of VC investments as a percentage of total investments in the euro
area (20), 2008–2018
3.3. Some further evidence on target firms and venture capital transactions based on the
matched database
This section leverages on the matched DB to shed some light on the characteristics of VC
investments, and on the features of VC-backed firms in the year of the deal.
3.3.1. Venture capital investments and industrial sector analysis

First, we analyse the main sectors of the VC-backed target companies, by using the
categorisation of sectors available in Orbis, associated with VentureSource’s target firms.
Specifically, we adopt Eurostat’s NACE Rev. 2 classification (European Commission, 2008).
Based on it, we show the development over time of the investments by sector, in volumes and
numbers of deals.
Sectors may be aggregated at different granularity levels. We first adopt the ‘Broad Structure’
(European Commission, 2008, p.57) of the NACE Rev. 2 classification, which distinguishes a
total of 21 categories (21). Hereafter, we refer to them as both broad sectors and macrosectors.
Figure 3.14 shows the development over time of the share of investments by volume (left)
and by number of deals (right) by sector over the total, according to this classification.
Figure 3.14 highlights the polarisation of VC investments in a few macrosectors. The top 5
macrosectors account for about 90 % of the total, while the other 14 categories cover the
(20) Including Slovakia from 2009, Estonia from 2011, Latvia from 2015 and Lithuania from 2015.
(21) Agriculture, forestry and fishing; mining and quarrying; manufacturing; electricity, gas, steam and air conditioning supply; water supply
– sewerage, waste management and remediation activities; construction; wholesale and retail trade – repair of motor vehicles and
motorcycles; transportation and storage; accommodation and food service activities; information and communication; financial and
insurance activities; real estate activities; professional, scientific and technical activities; administrative and support service activities;
public administration and defence – compulsory social security; education; human health and social work activities; arts,
entertainment and recreation; other service activities; activities of households as employers; activities of extraterritorial organisations
and bodies.
34
remaining 10 % of investments. The importance of these macrosectors is confirmed when
investigating both the amount invested and the number of deals.
Figure 3.14. – VC investments by industrial macrosectors (NACE Rev. 2 – broad structure),
2008–2017 (%)
These sectors are professional, scientific and technical activities; manufacturing; information
and communication; financial and insurance activities; wholesale and retail trade – repair of
motor vehicles and motorcycles. The first area includes activities with a legal or accounting
nature, as well as engineering, advertising, and research and development activities. The
second area represents the broadest sector, since it contains a large part of all industrial
production. The third sector includes high-tech activities and a focus on telecoms, information
technology (ICT) and software programming. The fourth sector covers all financial
intermediation activities (including banking and insurance). Lastly, the fifth sector mainly
includes wholesale and retail trade activities.
By comparing amounts and numbers of deals, we note that on average deals in financial
services have larger volumes, while those in ICT services are somewhat smaller. Looking at
trends, we find a slight reduction in the manufacturing sector in favour of professional
services, and information and communication, in particular from 2012 onwards.
A more granular representation of trends is reached when looking at the NACE four-digit level.
The results of this analysis are presented in Table 3.2. It includes microsectors that raise at
least 1 % of total VC investments. Each of the microsectors is also associated with its broad
sector.
Interestingly, many of the microsectors belong to two areas. The first is bio-oriented and
pharmaceutical research. Altogether, these microsectors account for about 28 % of total
investments (tagged in Table 3.2 with the medicine bottle icon). The second prevailing area is
the engineering one, with a particular focus on computer science and software development
and publishing.
35
Table 3.2. – VC investments by industrial microsector (NACE Rev. 2 – four digits), 2008–2017
(cumulative %)
% of
% of total
Broad sector Microsector (four digits) broad
investments
sector
Professional, Other research and experimental development on natural
38 11
scientific and sciences and engineering
technical
activities Research and experimental development on biotechnology 24 7
Engineering activities and related technical consultancy 10 3
Manufacturing
Manufacture of pharmaceutical preparations 30 7
Manufacture of electronic components 22 5
Manufacture of instruments and appliances for measuring,

9 2
testing and navigation
Information and
Computer-programming activities 29 7
communication
Other software publishing 17 4
Other information technology and computer service

activities 13 3
Financial and Other financial service activities, except insurance and

pension funding 43 3
insurance
activities
Activities of holding companies 29 2
Other credit granting 14 1
Wholesale and
Retail sale through mail order houses or internet 41 2
retail trade
Wholesaling of pharmaceutical goods 13 1
Others
Other human health activities 22 2
Renting and operating of own or leased real estate 16 2
Other business support service activities 12 1
Note: Top three 4-digit sectors (if they contribute at least 1 % to total investments) are selected within each broad sector.
36
The aggregation of these top microsectors accounts for about 26 % of total investment
(tagged in Table 3.2 with the computer icon). Hence, these two areas, which include 12 of the
top microsectors, account for more than 50 % of the total.
A third – still less relevant – area in the field of finance (tagged in Table 3.2 with the
smartphone icon) seems to emerge. We know that financial technology is an expanding sector
(Gabor and Brooks, 2017), even though it is falling behind in Europe in comparison with the
rest of the world (Haddad and Hornuf, 2019). Nevertheless, it is probably underestimated in
our sample, as many of the development activities are associated with changes in ICT
paradigms, and therefore potentially included among microsectors related to software
publishing.
Altogether, when refining the industry analysis looking at microsectors, it emerges that
investments are strongly concentrated in high-tech, engineering and bio-oriented research
activities, rather than more traditional sectors (e.g. manufacturing and sales).
These results provide some insights into how venture capitalists tend to allocate their
resources based on the target firms’ sector (22). The results could provide useful suggestions
for policymakers who aim to encourage a rise in VC investments even in more traditional
sectors. For instance, public funding dedicated to supporting venture capitalists’ investments
may be structured in sector-specific funds. This strategy would encourage a more
homogeneous distribution of investments across sectors.
3.3.2. Analysis of transactions

In this section, we analyse from a financial point of view VC investments raised by EU
companies. Figure 3.15 shows the median value of investments in million euro by round of
investment.
First, the amount varies significantly by rounds and types. Specifically, the amounts invested
in the early life stages of the firm are lower than those in the later phases. Accelerator, the
first instrument typically provided to newly founded firms, shows a median amount of
approximately EUR 50 000. In such cases, the transfer of cash is often associated with a fixed-
term programme that aims to provide softer support in terms of connections, mentorship or
training (Cohen and Hochberg, 2014), and enhance the skills of entrepreneurs in producing a
proof of concept or a demo useful for later investment rounds (Cohen, 2013).
(22) Nevertheless, this interpretation is based on descriptive (and not econometric) evidence. With this approach we cannot distinguish
whether or not the likelihood of a VC transaction (i) is heterogeneous across sectors and (ii) is driven by either the demand (companies
aiming to obtain financing) or the supply (venture capitalists looking for investment opportunities) side.
37
Figure 3.15. – Median VC investment amounts by round and type of investment, 2008–2017
The business angels and VC seed respond to similar needs in the first phases of firms’ lives,
after their foundation, but often before they begin to generate revenues or recruit employees.
These instruments show similar median amounts, approximately equal to EUR 500 000. The
first stages of VC investments produce median investments close to EUR 2 000 000, while
firms that manage to enter the later stages can get more than EUR 6 000 000 per transaction.
Recapitalisations of VC investments are completed by investors to divert allowances from
concurrent pre-existing investors who are no longer interested in the business. For this reason,
they normally come at later stages of the lives of firms. Consistently, the median investment
ranges between the VC earlier stages’ and later stages’ values (just below EUR 3 000 000).
Lastly, the median CVC investment is around EUR 2 000 000, close to VC early stages.
Altogether, these findings illustrate that VC is quite a flexible instrument, which could be
adapted based on target firms’ financial needs. The amounts may vary significantly according
to the stage of firms’ lives, from EUR 50 000 at the beginning of the activities (i.e. through an
accelerator) to more than EUR 5 000 000 at later stages.
These findings may be of interest to policymakers. If the policy objective is to increase the
number of SMEs receiving at least one VC opportunity, then it is vital to strengthen the
diffusion of accelerator, business angel and VC seed instruments. Conversely, if the goal is to
support more developed firms to further boost their growth, then later stages of VC
investments should be incentivised. In other words, the same amount of resources would be
allocated through venture capitalists to a larger or more limited group of target firms, in the
first and second cases, respectively (23).
(23) Nevertheless, this evidence being based on a descriptive analysis, it is not possible to draw robust conclusions on the existence of a
causal relationship between the type or round of investment and the amounts granted.
38
While the amount of investment gives a measure of the size of the deal, its duration provides
information on the time needed to observe its (long-term) effects on target firms. Figure 3.16
shows the median duration of VC investments, highlighting its development over time.
Figure 3.16. – Median duration of VC investments and confidence interval, 2008–2017
We then create the duration of the investment as the difference between the observed year
(in our 2008–2017 sample) and the year of investment. In addition, following a similar
approach to that of Cumming and Johan (2010), we consider a VC investment to be concluded
when the firm has completed an exit strategy. We proxy the completion of an exit strategy
with the occurrence of one of the following exit deals for our sample VC-backed firms: buyout,
IPO and M&A. Therefore, if a firm first receives an accelerator and later a VC seed investment,
the accelerator remains active even in the presence of VC seed, until the firm carries out one
of the exit strategies. Based on this approach, the median duration of the investment varies
between 4 and 5 years, with a slight upward trend in the sample analysed. This result suggests
that structural effects of VC investments on target firms (such as their ability to go public or
to be attractive in the market), although close in time, may be delayed. They do not emerge
in a few months or 1 year.
This evidence seems to indicate that policies oriented towards firms’ development through
VC investments should be more effectively assessed in the medium term. Specifically, if you
want to measure the effectiveness of a VC investment in terms of its ability to support young
businesses until they become solid enough to go public or to be merged or acquired, then on
average you should expect visible effects not before 4–5 years from the VC investment.
To complete our discussion, we investigate the relationships of the duration of investments
with the amount invested and with the number of deals.
39
Figure 3.17. – Relationship between duration of VC investments and amount invested, 2008–
2017 (number of deals (left y-axis) and median cumulative amount (right y-axis) vs duration
of investment)
Figure 3.17 shows that the most frequent duration of VC investments is equal to 1 year (24).
Moreover, the longer the maturity of investment, the lower the number of deals. Interestingly,
based on this representation, the median invested amount does not seem to show a strong
correlation with the duration of the investments, ranging from EUR 1.5 million to
EUR 1.3 million up to the 10th year of investment. Nevertheless, the slight decrease emerging
in particular after the sixth year may be due to some heterogeneity in the nature of different
exit strategies. Faster exits are typically linked to IPOs, whereas subsequent exits come as a
result of private transactions – for instance M&A or buyout (Cumming and Johan, 2010) – and
the former are associated with higher levels of investments than the latter (Guo et al., 2015).
3.3.3. Significance of the investment to the target firm

We move now to investigate the relevance of VC investments on the targeted firms. The
investment of venture capitalists is generally geared towards the acquisition of equity shares
of young firms showing growth potential – although with still contained valuations – in order
to maximise profits after the exit strategy (Guo et al., 2015). The choice of venture capitalists
should then be reflected in the amount invested, rather than the main variables typically
adopted for the firms’ evaluation.
One first possibility is to observe the relationship between the investment and total assets of
target firms. The trend is shown in Figure 3.18.
(24) With the exception of the ‘10+’ category, which covers all deals lasting more than 10 years.
40
Figure 3.18. – Ratio between VC investments and firms’ total assets, 2008–2017 (median and
confidence interval)
Interestingly, in our sample the median of this ratio is always around the value of 1. Hence, on
average venture capitalists seem to fully cover the value of total assets of target firms with
their investments.
In Figure 3.19, we investigate the relationship between VC investments and the debt structure
of targeted firms. Specifically, we create a ratio whose numerator is the amount of investment
in the investment year, and whose denominator is equal to the sum of the short- and long-
term debts. Therefore, this ratio could be thought a useful tool to understand how corporate
debt is in some way financed by the VC investment.
Figure 3.19. – Ratio between VC investments and firms’ total debt, 2008–2017 (median and
confidence interval)
41
Figure 3.19 shows that the median of this ratio fluctuates between 3 and 6, suggesting that
the liquidity injected by venture capitalists in the targeted firms could fully cover the value
of their debts. It is also interesting to note that that ratio looks similar to the median duration
of the investment (i.e. 4–5 years, as shown in Figure 3.16). In other words, we may assume
that the sums invested can cover the debts of the target enterprise for 4–6 years, and then
the entrepreneurial project is exhausted, or the firm undergoes any of the exit transactions
(e.g. IPO, M&A).
3.3.4. A first identikit of the targeted European Union firms

We now draw some relevant characteristics of the VC-targeted firms. Specifically, we analyse
the number of employees, total assets and sales (Figure 3.20) in the year of the VC investment.
Figure 3.20. – Number of employees, total sales and total assets of firms when receiving a VC
investment, 2008–2017 (median and confidence interval of number of employees (left), total
sales (centre) and total asset (right))
This figure shows that the median profile of firms receiving VCs falls into the SME category,
based on the size criteria included in the European Commission’s (2015) definition (25).
Specifically, these firms employ between 8 and 15 employees, have yearly sales of between
EUR 200 000 and EUR 500 000 and have total assets of between EUR 1.5 million and
EUR 2.5 million.
Moreover, looking at the combination of the three results, the median firm falls within the
definition of microenterprise (26) for 5 years (27) and small enterprise (28) for the other years of
the sample. Specifically, the number of employees and total assets range around the threshold
(25) While size constitutes a prerequisite, other conditions – including the independence of the firm – also have to apply for a firm to be
considered an SME, according to the European Commission definition. The relationship between the definition of SMEs and VC is
further investigated in Section 6.
(26) Fewer than 10 employees and less than EUR 2 million of sales and/or total assets.
(27) 2009, 2011, 2012, 2013 and 2014.
(28) Fewer than 50 employees and less than EUR 10 million of sales and/or total assets.
42
dividing the two subcategories, while sales are always well below the threshold that identifies
microenterprises.
This first set of results confirms that VC is a financial instrument that is typically received by
SMEs and is specifically received by its smallest subcategories. From a policy perspective, this
may suggest that, if a policy incentivising VC is implemented, on average it is likely to affect
SMEs rather than larger companies.
Nevertheless, as already anticipated, different rounds of VC investments are typically oriented
towards different types of firms. Hence, we expect to find some heterogeneity in the variables
describing firms’ dimensions when we investigate investments coming at the early versus later
stages. Figure 3.21 shows the results of this heterogeneity analysis.
Figure 3.21. – Employees, total sales and total assets by round of investment, 2008–2017
(medians of number of employees (left), total sales (centre) and total assets (right))
The three panels of Figure 3.21 describe the median values of the number of employees, total
sales amounts and total assets of target firms, respectively, discriminating by type or round of
VC investment. The red vertical line within each panel indicates the median value calculated
of total VC investments, in order to make the comparison among categories of investment
easier.
First, there seems to emerge a correlation between the dimensions of the firm and its
financial maturity. On each dimension, VC later-stage investments are larger than the median,
while accelerator, VC seed and VC earlier stages are smaller than the median. The progression
from accelerator to VC later stages, passing through business angel, VC seed and early stages,
is substantially confirmed when looking at all dimensions.
Second, we can draw some further conclusions on the dimensions of target firms. On average,
firms receiving accelerator, business angel or VC seed investments are more likely to be
microenterprises based on the European Commission definition. Their number of employees
is significantly lower than 10, and their total sales and assets are less than EUR 2 million. On
43
the other hand, firms receiving VC later stages are typically small enterprises, although their
total sales are just around EUR 2 million. The population of firms raising VC early stages is
more likely to divided between micro and small enterprises, since the median values are
around the threshold values for employees (10) and total assets (EUR 2 million).
Figure 3.22 shows the median age of firms by category of investment, created as the
difference between its year of incorporation and the year in which it receives the investment.
Figure 3.22. – Median age of firms when receiving different rounds of investment, 2008–2017
We observe that the median age of the target firm is around 3 years for all VC-backed types.
Nevertheless, some variability in results emerges when looking at the type of investment. Our
findings confirm that accelerator and VC seed seem to be destined for newly established or
very young firms (between 1 and 2 years old), while firms receiving CVC investments are on
average 3 years old, similarly to what happens to VC early-stage investments. Lastly, VC later-
stage investments are on average destined for 6-year-old firms.
These findings may be of interest for two policy reasons (29). The first is that, even
discriminating by type or round of investment, the firm that is the target of VC investments
matches an SME on average. The second is that it would be possible to target policies in an
even more refined way, leveraging on the dimension and the age of target companies. For
instance, if the objective is to encourage firms’ access to later stages of VC investments,
policymakers could restrict access to public funds dedicated to these rounds of investment to
microenterprises, which, otherwise, might have less chance of receiving them.
(29) Nevertheless, this evidence being based on a descriptive analysis, we cannot draw conclusions on the existence of a causal relationship
between the type or round of investment and the size of the target company.
44
3.4. Key takeaways
The key takeaways of this section are reported in Box 3.2.
▪ VC investments significantly increased from EUR 30 billion in

2008 to EUR 380 billion in 2018.
▪ At the worldwide level, VC transactions are concentrated in a few
countries, with the United States and China recently further
emerging as main targets and investors and the EU still lagging
behind them. Most of the transactions (66 %) are completed
between investors and target companies based within the same
country.
▪ At the EU level, most of the VC investments are focused on a
limited number of countries, mainly the United Kingdom, France
and Germany. Moreover, a good level of integration of VC
markets within the EU emerges, since nearly 40 % of EU
investments are in Member States other than that of the investor.
▪ The euro is the most adopted currency in VC-backed transactions
Key takeaways both within the EU and in the euro area.
▪ The amounts of VC invested vary significantly through the stages
of a firm’s development: from EUR 50 000 at the beginning of its
activities to more than EUR 5 million at later stages.
▪ Since the average duration of the VC investment is in the range
of 4–5 years, effects of VC on target companies should be
assessed in the medium term.
▪ Venture capitalists focus their investments on companies
operating in high-tech sectors, specifically bio-oriented and
pharmaceutical research and engineering, computer science,
and software development and publishing.
▪ The average EU company raising a VC investment is an SME. First

rounds of investments are typically raised by microenterprises,
whereas later stages are generally obtained by small enterprises.
45
4. The investment strategies of venture capitalists
The financing of potential high-growth enterprises and start-ups through VC has recently been
the object of increasing attention in the empirical finance literature. Several works have
analysed venture capitalists’ strategies, specifically investigating how venture capitalists’
decision-making processes on investments work.
For the purpose of this study, most of the relevant empirical evidence on ‘outside equity’
finance (Myers, 2000) is summarised, focusing on the investment criteria (30) adopted by
venture capitalists. Altogether, three main strands of research emerge (31): (i) investigation of
the ultimate goal of the investments, (ii) the analysis of multiple stages and (iii) studying the
impact of external macro-factors on the investment strategy.
Some recent studies in the first of those streams of research point out that the ability to exert
a certain level of control over applicants once the investment is granted is a relevant factor
influencing venture capitalists’ decisions (Wang et al., 2017). Nevertheless, venture capitalists
seem to be more interested in selecting firms with outstanding potential in terms of possible
exit outcomes and company valuation (Gompers et al., 2020), and may increase their control
over the target firm only if they feel the investment is becoming riskier (Kaplan and Strömberg,
2004), up to the ownership of the majority of shares within a typical principal–agent
framework. At the same time, Drover et al. (2017) show how venture capitalists are willing to
relinquish a certain degree of control over investees when the prestige of the entrepreneurial
and management team increases.
In other words, the identification of the ultimate goal of the investment depends closely on
the business relationship between the investor and the investee, usually the standard
principal–agent relationship (Hart, 2001). Agency limitations or possible inefficiencies that
might arise between the principal (venture capitalist) and the agent (firm invested in) may
influence the way the investment affects the target company. In these cases, the principal may
ask for stronger control over the agent, instead of providing only lighter external support
(Kaplan and Strömberg, 2004). As a consequence, to mitigate some of these risks, venture
capitalists either take some measures (e.g. recruiting the management team and exercising
stock option plans) to increase their informal control of the investee or, in some other
circumstances, could aim to own the majority of the shares to exert full legal control over the
target firm. Some works also suggest that these stylised behaviours may change depending
on the different stages or rounds of investments (e.g. Petty and Gruber (2011)).
(30) By ‘decision-making criteria’, the literature refers to product/service characteristics, target market characteristics, financial potential
and entrepreneurial/management team characteristics.
(31) See, for instance, Drover et al. (2017) for an exhaustive literature review.
46
To mitigate agency problems and exposure to volatile deals and markets, venture capitalists
adopt several contractual mechanisms. One of the most employed approaches is the
multistage investment (32), which is also behind the second stream of research. Multistage VC
investments allow venture capitalists to evaluate, at different stages, the performance of the
target firm. This approach may help to decide whether to continue funding the project,
renegotiate the contract terms or abandon the investment if the company fails to meet the
prearranged performance targets, leading to more efficient investment decisions and
outcomes (Gompers, 1995; Tian, 2011; Li and Chi, 2013). The literature finds an inverted U-
shaped relationship between effective decision-making and experience in VC financing. In
other words, increasing experience in projects’ evaluation leads venture capitalists to more
effective decisions up to a certain threshold. After that, overconfidence might prevail,
potentially resulting in biased decisions and weak performances (Shepherd et al., 2003).
Similarly, venture capitalists seem to adopt different individual criteria for evaluating projects
based on their consolidated experience (Franke et al., 2008). While experienced venture
capitalists give more positive evaluations to projects with more cohesive management teams,
less experienced VC investors focus more on team members’ qualifications in their evaluations
of investment. Other studies show that the investment decisions of venture capitalists are also
influenced by their values (Matusik et al., 2008): sharing similar backgrounds and past work
experiences with the entrepreneur/management could encourage further VC investments
(Franke et al., 2006; Chen et al., 2009). Finally, some studies analysed the certification effect
of the venture capitalists’ reputations on the offer of VC financing and on the performances
of their portfolios’ companies. Financial proposals made by VCs with a high reputation to start-
ups on their first round of funding are three times more likely to be accepted than proposals
made by VCs with a more limited track record (Hsu, 2004). Companies backed by VC from
experienced venture capitalists with high reputations are more likely to go public (i.e. IPO),
obtain higher share prices from an exit strategy (Sørensen, 2007; Pollock et al., 2010) and have
a greater propensity to create alliances between venture capitalists and VC-backed companies
in their portfolios (Gu and Lu, 2014).
The third strand of literature focuses on macro-factors that may affect decision-making on VC
investments. Recent research points out how VC investments are also driven by external
factors that may facilitate or limit potential investment decisions in specific markets or
countries. One important macro-factor is the VC business cycle. VC investments tend to follow
cyclical patterns with systematic variations in terms of projects financed and resources
invested. Some works recognise the growth in gross domestic product and the reduction of
labour market rigidities as decisive drivers of VC investments (Jeng and Wells, 2000).
(32) Other contractual mechanisms adopted by venture capitalists to mitigate agency problems generally relate to settlements and
covenants (Bengtsson, 2011), stock options and convertible securities (Cornelli and Yosha, 2003; Hellmann, 2006; Arcot, 2014),
representation on the board and the monitoring of management (Yoshikawa, 2004; Wijbenga et al., 2007), replacing the founders of
the investee start-up with an outside chief executive (Hellmann and Puri, 2002) and syndication (Manigart et al., 2006).
47
Conversely, other studies point out some possible limitations to the diffusion of VC
investments due to external factors, mainly related to financial markets’ characteristics
(Inderst and Müller, 2004), network barriers that incumbent venture capitalists have erected
to restrict outside venture capitalists from entering the market (Stuart and Sorenson, 2007;
Hochberg et al., 2010), and scarcity or absence of government programmes, public incentives
and public VC funding (Jeng and Wells, 2000; Cumming and MacIntosh, 2006; Cumming, 2007;
Guerini and Quas, 2016).
The institutional and legal environments are also considered influential factors in VC decision-
making. Differences between countries in legal and accounting standards have a significant
impact on investment decisions (Jeng and Wells, 2000). Adequate laws facilitate faster
screening and origination of deals (Cumming et al., 2010). Developed institutional and legal
environments also make syndication easier and are associated with larger amounts and longer
durations of investments (Dai et al., 2012), while they lower the probability of potentially
harmful co-investment (Gu and Lu, 2014; Cumming et al., 2010). Greater protection of
property rights increases entry rates and reduces the exit of venture capitalists from the
market (Desai et al., 2003). On the contrary, some other elements such as geographical,
cultural and institutional distance seem to be correlated with lower probability of VC
investments (Bruton et al., 2010; Cumming and Dai, 2010; Dai et al., 2012; Li et al., 2014). Like
other financial intermediaries, venture capitalists have better access to information when they
can experience face-to-face interactions with (potential) investees. That might translate into
a sort of local bias in favour of domestic investments.
The following analysis mainly focuses on the first two strands of the literature as more
immediately affecting policy measures in Europe (33). The first policy-relevant aspect relates to
the ultimate goal of the VC investment; our analysis will try to answer to the question of
whether or not venture capitalists invest in companies by exchanging financing for equity
stakes to obtain their ownership and help to increase their value. This last point clearly shows
policy implications at the EU level. According to the European Commission’s current definition
of SMEs (European Commission, 2003), target companies lose their SME status if the venture
capitalist obtains more than 50 % of the shares with its investment.
The second aspect builds on the second stream of the literature, with reference to the
investment decisions adopted by VC investors to mitigate financial risks. In particular, the
analysis will focus on multistage financing as one of the most important investment strategies
adopted by venture capitalists to mitigate agency problems and to identify solid investment
(33) We may assume that the EU Member States have relatively similar institutional and economic macro-factors that may affect the VC
market. Nevertheless, since some differences might still exist within the EU, in the analysis related to the targeted firms’ behaviour
(Section 5) we adopt an econometric framework that takes into account country-specific factors that may limit potential investment
decisions.
48
opportunities. This analysis could shed new light on how the diffusion of VC could be
encouraged by policymakers, either focusing on initial rounds or extending policy support in
favour of later stages.
Lastly, our analysis is complemented by investigating if and how VC investors respond to other
comparable forms of investment. In particular, it covers a subset of firms receiving both VC
and either CVC or public grants, to look for possible existing interaction between corporate
venture capitalists or public authorities and institutional VC investors.
Box 4.1 highlights the key investigations conducted in this section.
▪ This section investigates the strategy of venture capitalists’

investments, by focusing on the ownership of the target company
and on multiple stage financing.
▪ It compares the trends in CVC and other VC investments.
▪ It analyses the patterns of public and private funding of firms by
Highlights
comparing VC investments with public grants, including the H2020
SME Instrument and other public grants.
▪ It provides an overview of characteristics of firms targeted by (i)
both venture capitalists and CVC and (ii) private VC and public
entities.
4.1. Ownership in venture capital investments

This section analyses venture capitalists’ investment choices as found in the first strand of the
literature. In particular, it investigates whether or not the venture capitalist might want to
obtain the ownership of the firm through the acquisition of the majority of equity shares.
Ownership means that the venture capitalist owns more than 50 % of equity shares of the
target company. In our framework, this analysis can be performed for the subset of firms
(those included in our matched DB) for which the names of the VC investor(s) and of the GUO
are available (34).
(34) A complementary analysis might be focused on how venture capitalists exert control, rather than ownership, over target companies.
This could in principle be analysed by exploiting information on either voting rights or different specific contracts, agreements and
commercial arrangements between the VC and the target company. However, to our knowledge, this kind of information is neither
publicly available nor in commercial databases. To overcome this issue, in the absence of voting rights and ancillary contracts, one
possible proxy might be the presence of investors with at least 25 % of equity shares, i.e. GUO25. We leave this analysis to future
investigations, since we would first need to complement our dataset with information on GUO25, which is currently not included for
all the VC-backed firms.
49
Accordingly, this analysis aims to show what proportion of VC investors own the majority of
the shares of their target companies. In other words, it looks at the GUO of the target firm
to check if it is the same as the venture capitalist who made the investment (35).
From a policy perspective, it is also useful to understand whether or not venture capitalists
are in general interested in the acquisition of the target company, given the implications for
SME status. The target company would no longer be identified as an SME, thus potentially
losing access to dedicated policies or funding (e.g. H2020).
In principle, three possible scenarios may emerge from this analysis. First, a target company
may be independent, since it is not owned by a third party. Conversely, a target company
may be controlled by a third party, which could be either the venture capitalist or a different
investor.
This analysis is performed on the subset of firms for which a GUO exists and is available in our
matched DB. Specifically, the GUO50 indicator, identifying the subject with a minimum of 50 %
ownership stake based on the Orbis definition, is adopted. Moreover, the matching between
the investor and the investee is performed by comparing their names as strings, since an
official link between VentureSource and Orbis is not distributed. To do that, standard textual
analysis procedures are adopted to (i) harmonise and clean strings before the comparison
(see, for instance, Allahyari et al., 2017), including deletion of punctuation and capitalisation
of words, and (ii) compare sequences of strings (e.g. through Levenshtein distance). Lastly, all
cases for which the investor is unique but anonymous (e.g. ‘Individual Investor(s)’ or
‘Management’) were excluded from this analysis, since we were not able to determine
whether or not the investor and the investee coincided. Nevertheless, this approach might
underestimate the number of independent firms, since the management team and individual
investors may in some cases be the founders (and owners) of the firms.
After raising a VC investment, most firms are still independent (i.e. the target firm coincides
with the GUO), in between approximately 70 % and 80 % of cases. In fewer cases (up to
30 %), target companies are owned by a different subject. In particular, the VC becomes the
GUO only under limited circumstances (always fewer than 10 % of occurrences), while some
different investors may take the ownership in approximately 15–25 % of cases.
The results of the analyses are presented in Figure 4.1.
(35) In case of syndicated VC investments, the shares acquired by each VC investor involved in the transaction are considered separately
for the identification of the GUO50 of the target company, unless a formal link between VC investors is in place (e.g. they form a group
through direct or indirect control).
50
Figure 4.1. – Distribution of VC-backed firms across categories of ownership, by round of
investment
These results seem to be in line with the related empirical literature, suggesting that venture
capitalists are generally less interested in owning the absolute majority of equity stakes of
target firms, especially in the very first rounds of investments (e.g. accelerator), than investing
in firms with high growth potential (Gompers et al., 2020). In some circumstances, generally
associated with a growing perceived risk in subsequent rounds, they may decide to acquire
the majority of shares mainly to preserve their investment (Kaplan and Strömberg, 2004).
In addition, a sort of inverted U-shaped relationship emerges between the maturity of the
round and the proportion of venture capitalists aiming to own the target company. After being
negligible in the first rounds (e.g. accelerator), ownership shares reach a peak in the VC seed
and earlier stages, and then fall in subsequent rounds. However, it is not possible to check
whether the ownership has ben obtained through the acquisition of existing shares or with
new shares (dilution).
The results of this analysis indicate that VC investors do not seem to include ownership as a
major goal in their mission. Consequently, the proportion of SMEs that would lose their
status seems to be contained and concentrated in relatively large and more mature firms
that have access to later rounds.
4.2. Multiple stages of venture capital investments

The second stream of investigation is dedicated to the analysis of multiple VC investments. It
emerges that a significant proportion of firms receive more than one VC deal to develop
their business activities.
51
Figure 4.2 shows the percentage distribution of the enterprises that received one or more
deals over the period analysed.
Figure 4.2. – Distribution of firms receiving one or more VC-backed deals, 2008–2017
(cumulative %)
It clearly emerges that firms receiving one to four deals represent 90 % of the sample, and
the relative proportions of firms that receive a single deal (31.7 %), two deals (28.1 %) and
three or four deals (29.9 %) are very similar. It is important to notice that firms receiving five
or more deals represent only 10 % of the sample. This representation provides an insight into
the fact that most firms (approximately 70 %) that have received a VC investment have
looked for additional outside financing to develop their business. At the same time,
speculatively, venture capitalists may be interested in investing in companies that have
already received previous rounds of VC transactions. This could be explained by the reduced
agency costs and risks associated with investments in more consolidated and financially sound
firms.
In order to confirm this assumption, it should be verified that companies receiving more than
one deal are not exclusively financed by a single investor. Otherwise, it will not be possible to
draw the conclusion that the first investment has constituted a positive signal to other VC
investors.
Figure 4.3 shows the distribution between deals made by the same investor and deals made
by different investors based on the number of deals received by the target company.
Therefore, the first category shown in Figure 4.2 (i.e. companies in our sample that receive
only one deal) is excluded from this analysis.
52
Figure 4.3. – Distribution of deals by investor and number of deals, 2008–2017 (cumulative %)
Three main categories emerge. The first one includes firms that receive funds from the same
investor (‘same investor for all the deals’). Hence, the risk related to investments falls on a
single venture capitalist. Altogether, these represent a minority of cases and their proportion
decreases as the number of deals increases. In particular, the proportion decreases from
around 15 % of the enterprises receiving two deals to zero cases for companies receiving at
least five deals.
The second category includes firms involved in multiple deals, each of them with a different
investor (‘different investor for each deal’). Therefore, in this case several investors follow
each other in injecting VC investments into the same firm. In this case, the overall risk related
to the firm’s operations is shared among all the investors. This is the most frequent case for
all firms receiving fewer than five deals. However, its proportion decreases with the increase
in the number of deals: it goes from more than 80 % in the case of companies receiving two
VC-backed deals to less than 40 % for firms receiving seven deals.
The third category comprises firms that are targets of mixed investment strategies (‘same
investor for at least two deals’), whereby funds are received from both repeat and one-time
investors. The overall share of this category increases with the number of deals, and becomes
dominant for firms receiving at least six investments. Hence, the risk related to investments is
unevenly distributed among different VC investors (36).
Altogether, it emerges that venture capitalists seem more keen to invest in companies that
have already raised other deals. Moreover, as shown in Figure 4.3, only a minority of firms
raise VC deals from a single investor. Hence, consistently with the literature on multistage
(36) Nevertheless, we should acknowledge that this could be not the case in terms of volumes (e.g., in the case of two venture capitalists
investing in the same firm, if the first VC invests EUR 500 000 twice and the second VC invests EUR 1 million once, they will bear the
same amount of risk).
53
investment strategy, venture capitalists are generally keen to share the risk of investment.
Nevertheless, the most attractive companies (with at least five deals) seem to benefit from
the presence of some recurring venture capitalists, which appear among the investors in at
least two investments. These investors behave as a pivot for VC investments, allowing an
increase in the overall capital raised by the firm while still sharing the investment risk with
other subjects.
Lastly, once VC investors identify potentially profitable emerging opportunities, they tend
to repeat their investments in the same company. According to our analysis, approximately
70 % of firms receiving one VC investment are targets of a second deal. These findings are in
line with existing literature on multiple stage financing, suggesting that less profitable
ventures are less likely to raise further VC investments (Dahiya and Ray, 2012). Moreover, this
may suggest that policy actions aimed at extending the basis of VC beneficiaries – for instance
bringing them into contact with venture capitalists – may stimulate the appetite for good
investment opportunities. Public policies could also minimise the restrictions on repeated
investments in order to foster a closer relationship between investor and investee.
4.3. Focus on corporate venture capital

Section 3 considered CVC as one of the components of our VC definition. This section further
investigates this instrument, by focusing on the strategies of CVC investors (37).
In particular, it leverages on the subset of firms that received both CVC and other forms of
VC investments, to examine any existing interaction. On the one hand, it looks at whether
or not corporate venture capitalists are more likely to invest in firms that have already
received some other forms of VC. On the other hand, it analyses whether or not institutional
venture capitalists (IVCs) are keen to invest in firms that have already received some forms
of CVC investments.
The analysis of the differences among strategies behind these two types of investments may
have policy implications. If some significant differences emerge, it will then be useful for
policymakers to distinguish between actions oriented towards the two types of investments;
otherwise, this distinction will not be necessary.
All the analyses are carried out on our matched DB, obtained by merging VentureSource and
Orbis. We identify CVC by looking at VentureSource investments tagged with the ‘corporate
equity (38)’ label.
(37) For the sake of completeness, a complementary analysis to the CVC strategy is available in Section A.2 of the annex, with focuses on
(i) CVC distribution among EU Member States and industrial sectors (Section A.2.1); (ii) the characteristics of firms targeted by CVC
investments (Section A.2.2).
(38) We will use the terms ‘corporate equity’ and ‘CVC’ interchangeably during the discussion.
54
4.3.1. Strategies of corporate venture capital investors
This paragraph examines the strategies pursued by corporate companies when investing as
corporate venture capitalists. Specifically, it analyses the subset of firms that have received
both CVC and other forms of VC investments (including business angel and IVC investments;
hereafter, other VC). The objective is to understand if CVC investors are influenced in their
investment choices by the fact that target companies have already raised other VC
investments.
First, Figure 4.4 shows the distribution of firms that received CVC between (i) those exclusively
raising CVC investment and (ii) those also receiving other VC investments.
Figure 4.4. – Percentage of target firms receiving only CVC or receiving CVC and private VC
financing, 2008–2017 (cumulative %)
In our sample, about half of the companies received both CVC and other VC investments.
Therefore, CVC can be considered a non-exclusive instrument, which potentially integrates
with other forms of VC.
Second, Figure 4.5 shows that CVC is mostly associated with early- and later-stage
investments, which account for about 80 % of total VC deals. This distribution is similar to that
reported in Figure 3.11, which is not restricted to firms that have raised CVC investments. In
other words, the fact that firms received CVC does not seem to influence the type/rounds of
other VC deals they could raise in addition.
55
Figure 4.5. – Number of VC deals (by type) granted to firms that have also received CVC, 2008–
2017 (cumulative %)
Third, Figure 4.6 compares the characteristics of CVC and other VC investments, based on
their chronology. More specifically, we present the median values of CVC and other VC
investments when they are chronologically the first investment in the company’s history (left
panel), and compare them with the median values of CVC and other VC investments when
they are received later by the company (right panel).
Figure 4.6. – Comparison of median investment volumes (by type), based on the chronology
of investments, cumulative 2008–2017: first investment raised (left), second or later
investment (right)
This analysis investigates whether or not the CVC investment varies in terms of volume
based on whether or not the same firm has already received another VC investment. This
seems to be the case: the median amount of a CVC investment is approximately equal to
EUR 1 million when it is the first VC investment, whereas it exceeds EUR 1.5 million when it is
56
the second or later investment. Therefore, CVC investors increase the median amounts of
their investments if the firms have been already targeted by other previous VC investments.
This result provides further evidence on CVC as a quite flexible investment instrument,
relatively responsive to the investment history of the target company.
In particular, this interpretation is in line with other findings (Siota et al., 2020), which suggest
that CVC may enter at different stages of the company’s development. However, other VC
investments are more sensitive to the chronological order of deals, as confirmed by a very
marked difference (more than EUR 3 million) between first and second (or later) investments.
4.4. Public grants and venture capital investments (39)

This section compares public and private funding of innovative companies in Europe. It
analyses different types of public grants and VC investments in terms of their overall
contribution to funding of firms and the characteristics of firms they target. For the analysis
of public grants, we complement the two datasets on VC introduced in Section 2 with two
additions. First, we included deals tagged as ‘Grant-Government’ in VentureSource. Second,
we further integrated the datasets with information on firms that have received any SME
Instrument grants by the European Commission within the H2020 scheme between 2014 and
2017.
Hence, the analysis is conducted on two datasets. The first one, being derived from
VentureSource only, does not include historical information on the financials of
targeted/granted firms. At the same time, it provides the full picture of both private VC and
public grants in Europe in the sample period. The second one, being derived from the matched
DB, allows us to perform more detailed analyses on firms (e.g. sectors and financials) but
limited to the subsample of matched firms.
The full dataset (40) counts 3 659 public grants, of which 77 % are from H2020 and the
remaining 23 % from other public granters. The matched DB (41) shows 579 of such grants,
associated with approximately 200 granters (42). Specifically, we found 124 SME Instrument
grants, of which 7 were already included in the VentureSource original dataset. Hence, the
matched DB includes a total of 696 grants, of which approximately 18 % are referable to the
SME Instrument and the rest to other public grants (43).
Altogether, granters of other public grants may be broadly classified into two categories,
based on the matched DB: (i) supranational authorities, bodies or agencies, including the
(39) This section was jointly developed by A. Bellucci, G. Gucciardi and D. Nepelski.
(40) The full dataset feeds Figures 4.7 to 4.10.
(41) The matched DB feeds Figures 4.11 to 4.16, in addition to all figures in Annex 3.
(42) Some of the grants are provided jointly by (up to five) different entities.
(43) For the sake of clarity, from now on we will tag as ‘SME Instrument’ the grants obtained from the H2020 dataset, as ‘other public
grants’ the grants included in VentureSource or in the matched DB and as ‘public grants’ the sum of the two. Altogether, our matched
sample covers approximately 19 % of public grants (from VentureSource and H2020).
57
European Commission and the European Investment Bank, accounting for approximately 30 %
of the total; (ii) public authorities, including ministries, states and municipalities, together with
national or local public agencies and public-owned companies, representing approximately
60 % of the grants. The remaining 10 % mainly includes joint ventures between private and
public entities, or between supranational and national public authorities.
The following analysis focuses on the SME Instrument and other public grants separately,
because of their different – and not necessarily homogeneous – sources and natures.
Nevertheless, some analyses are also conducted on all public grants. The SME Instrument and
other public grants are then compared with VC investments. The objective is to investigate
the absolute level of public grants of any origin, i.e. the European Commission and other public
agencies, and their relative level compared with VC investments in Europe. In addition, in
order to analyse investment strategies of public and private entities, the characteristics of
firms that they target are considered.
4.4.1. The evolution and geography of public grants and venture capital in the European
Union
This paragraph looks at the evolution and geography of public grants and VC investments in
the EU. Within public sources of funding, particular emphasis is given to the role of the SME
Instrument in the European landscape of funding for innovative SMEs.
Figure 4.7 presents cumulative volumes and numbers of transactions, including the SME
Instrument (44) and other public grants, and VC investments, in the period between 2008 and
2017. Concerning the total volume of funding, in 2008 European companies received
EUR 4.3 billion. Within a decade, this amount quadrupled and reached EUR 20.5 billion in
2017. In 2008, VC investments accounted for 97 % of the total cumulative volumes of funding.
The remaining 3 % was provided by public entities. In 2017, the contribution of VC investments
was much the same as in 2008. At the same time, other public grants decreased to 1.5 % in
favour of the SME Instrument, which contributed the remaining 1.5 %. The SME Instrument
accounted for 0.03 % of the total funding when introduced, and rapidly reached nearly 1.5 %
of the cumulative volume of funding to innovative firms in Europe. In 2017, among the SME
Instrument phases, phase 2 accounted for 92 % of about EUR 304 million.
Regarding the total number of deals, i.e. including public grants and VC investments, in 2008,
public entities and venture capitalists provided funding about 1 400 times to innovative
companies in Europe. Like the volume of investments, this number more than tripled within a
decade and reached about 4 900 in 2017. At the beginning of the period analysed, public
(44) The SME Instrument was launched under the H2020 framework programme in 2014. Hence, the time span of the grants analysed
ranges from 2014 to 2017.
58
grants accounted for 6 % and VC investments 94 % of the overall number of deals. In 2017,
the share of public grants in the number of deals decreased to 22 %.
In 2017, the number of SME Instrument grants accounted for 77 % of all public grants and
14 % of the total number of deals, i.e. including public grants and VC investments. Because
the grants were smaller, SME Instrument phase 1 accounted for over 70 % of the cumulative
SME Instrument grants in 2017.
Figure 4.7. – Cumulative volumes by type (SME Instrument, other public grants and VC), 2008–
2017: volumes (left) and number of deals (right) (%)
Source: JRC elaborations on VentureSource full dataset and H2020 official dataset.
The above analysis shows that the share of public grants in the cumulative volume of funding
was substantially stable between 2008 and 2017, with a shift from other public grants to the
SME Instrument. The SME Instrument, within a very short period from its inception, became
an important source of funding in Europe. In 2017, SME Instrument grants accounted for
1.5 % of the cumulative volume of funding and 13 % of the total number of investments in
innovative firms by private and public entities.
Turning to the geography of SME Instrument grants, Figure 4.8 presents cumulative volumes
and number of grants across the EU Member States in 2014–2017. Spain, Italy and the United
Kingdom represent the top three countries raising cumulative SME Instrument funding, in
terms of both amounts (43 %) and numbers of deals (50 %). They are followed by Germany,
France, the Netherlands, Sweden, Denmark and Finland. Altogether, SMEs located in these
nine countries raised 80 % of the cumulative SME Instrument funding, in terms of volumes
and numbers of deals, between 2014 and 2017.
59
Figure 4.8. – Cumulative SME Instrument grants by country: volumes (million EUR, left) and
numbers of grants (right), 2014–2017
Figure 4.9 presents the cumulative SME Instrument grants as a percentage of total public
grants, by volumes and number of deals by country.
Figure 4.9. – Cumulative SME Instrument grants as a percentage of total public grants by
country: volumes (left) and numbers of deals (right), 2014–2017
Note: 7 countries with up to 10 public grants in the period 2014–2017 were excluded from the analysis and the figures to
avoid biases in the interpretation of ratios of very small values.
The SME Instrument plays a key role as a public source of funding for SMEs. In several
countries (Czechia, Estonia, Greece, Italy, Latvia, Hungary and Slovenia), it accounted for more
than 95 % of all cumulative public grant funding from 2008 to 2017. In contrast, in five
60
European countries (Belgium, Germany, France, Sweden and the United Kingdom) the SME
Instrument volumes account for at most 50 % of public grants.
4.4.2. Analysis of public grants and venture capital funding

This section compares public grants with VC investments. In particular, it looks at the
amount of public grants by category. Then it investigates the mix of funding from different
sources by analysing how many firms receive only public grants and how many receive public
grants and private VC financing. Finally, it attempts to see if there is any relationship between
the source, the sequence of funding (private vs public) and the volume of grants/investments.
Figure 4.10 presents the median cumulative amount of funding by grant category between
2008 and 2017. The median grant provided by programmes other than the H2020 SME
Instrument was EUR 0.4 million. This value for the SME Instrument depends on the SME
Instrument phase. SME Instrument phase 1 offered innovative SMEs a lump sum of
EUR 50 000 for exploring and assessing the technical feasibility and commercial potential of a
breakthrough innovation. In contrast, SME Instrument phase 2 provided funding for
innovation projects underpinned by a strategic business plan and feasibility assessment. The
median amount of SME Instrument phase 2 grants was just over EUR 1 million. Hence, this
new funding instrument for innovative SMEs, introduced in the H2020 framework
programme, provides funding that was not available at the national and regional levels in
Europe.
Figure 4.10. – Public grant amounts by category: median of cumulative amount by category
of grant, 2008–2017
Note: SME Instrument phase 1 and 2 figures are given for the available period (2014–2017).
Turning to the combination of public and private funding of firms, Figure 4.11 presents the
percentages of firms receiving only public grants and those receiving public grants and private
61
VC financing. Among the firms analysed, 35 % received only public grants. The remaining
65 % of firms were able to receive both grants from public entities and VC investments. This
shows that European companies that seek external funding make use frequently of both
public and private sources of financing.
Figure 4.11. – Percentages of firms receiving only public grants and receiving public grants and
private VC financing, cumulative 2008–2017
Only Public Grants 35
Public Grants & VC 65
0 20 40 60
%
Source: JRC elaborations on matched DB and H2020 official dataset.
Figure 4.12 presents the types of VC funding raised by firms that also received public grants.
Firms that received public grants between 2008 and 2017 received mainly early stages of VC
funding, accounting for 58 % of nearly 4 000 VC funding rounds.
Figure 4.12. – Percentage (left) and number (right) of VC deals (by category) raised by firms
that also received public grants, cumulative 2008–2017
Accelerator
Angel
Corp Equity
Early
Later
Seed
0 500 1,000 1,500 2,000 2,500

# Deals
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VC later stages represent the second largest type of funding by VC (17 %) for firms that also
received public grant funding. Angel and seed funding represent altogether 8 % and 11 % of
all VC deals, respectively. Funding from accelerators and corporates was 1 % and 4 %,
respectively, of all the private investments involving firms that received public grants.
Hereafter, the relationship between the volume of the first funding transactions and those
of subsequent ones is investigated. Accordingly, Figure 4.13 compares the average and
median volumes of SME Instrument, other public grants and VC funding, when they appear to
be the first separate investment received by a firm (left) and the second (or later) investments
raised (right).
Figure 4.13. – Comparison of volumes (by category), cumulative 2008–2017
Average first investment raised Average second or later investment raised
Median first investment raised Median second or later investment raised
The average (median) volumes of funding for each investment type when it is the first
investment/grant received by a firm are other public grants EUR 1.1 million (EUR 250 000);
63
SME Instrument phase 2 EUR 1.8 million (EUR 1.4 million); VC EUR 3 million
(EUR 1 million) (45). The average (median) volumes of funding for each investment type when
it is a subsequent investment/grant received by a firm are other public grants EUR 2.5 million
(EUR 1 million); SME Instrument phase 2 EUR 1.7 million (EUR 1.6 million); VC EUR 7.5 million
(EUR 2.7 million). Thus, according to Figure 4.13, except for the SME Instrument grants, the
volume of funding increases from the first round to the follow-up funding rounds. This seems
to be the case for both other public grants and private investments.
4.4.3. Features of firms receiving both public grants and venture capital investments
This section analyses the investment strategies of public and private entities with respect to
characteristics of firms that they target. It starts with comparing the sector of activity of firms
that receive SME Instrument and other public grants, looking at the NACE broad sectors (46).
Then it looks at the demographics of these firms and their financial performance.
Figure 4.14 presents the development of H2020 SME Instrument grants by industrial sector.
One year after its inception, i.e. in 2015, companies in the manufacturing sector received the
largest part of the funding (46 %). With 40 % and 11 % of total funding, professional, scientific
and technical activities and the information and communication technology (ICT) sector held
the second and third places, respectively. By 2017, the ICT sector had increased its share in
total funding to 26 % at the expense of the professional, scientific and technical activities
sector, which accounted for 24 % of total funding in 2017. The distribution of the number of
SME Instrument grants by firms’ sector of activity presents a different picture. In the initial
period, companies in the professional, scientific and technical activities sector received 43 %
of the grants. Grants to firms in the ICT and manufacturing sector accounted for 23 % each. In
2017, the share of grants to firms in the manufacturing sector increased to 30 % and that of
those to firms in the ICT sector to 25 % of the total number of grants.
(45) SME Instrument phase 1 is not relevant in this comparison, because firms receive a lump sum of EUR 50 000.
(46) A more granular analysis at the four-digit level is available in Annex 3.
64
Figure 4.14. – Evolution of SME Instrument (phase 1 and 2) grants by industrial sectors (NACE
Rev. 2 – macrosector), 2014–2017 (% volumes (left) and % deals (right))
Similarly, Figure 4.15 presents the development of other public grants by industrial sector. In
2008, companies in the professional, scientific and technical activities sector received the
largest part of funding (46 %) from other public grants, followed by companies in the
manufacturing (34 %) and ICT (6 %) sectors. Over time, the first sector consolidated its
importance, and it accounted for over 60 % of the total funding in 2017. The manufacturing
and ICT sectors maintained their second and third places in the ranking, but their shares in the
total funding decreased to 22 % and 4 %, respectively.
Figure 4.15. – Other public grants by industrial sector (NACE Rev. 2 – macrosector), 2008–
2017 (% volumes (left) and % deals (right))
The distribution of the number of other public grants by firms’ sector of activity follows a
different pattern from SME Instrument grants. In 2008, companies in the professional,
scientific and technical activities sector received 35 % of the public grant funding. Grants to
firms in the ICT and manufacturing sectors accounted for 16 and 34 %, respectively. In 2017,
65
the share of public grant funding to firms in the manufacturing decreased to 27 % and that to
firms in the ICT sector increased to 19 % of the total volume of funding.
Figure 4.16 presents an overview of characteristics of firms receiving public grants or private
investments by investment category and source, i.e. public and private. It includes median
values for four variables: number of employees, age, total sales and assets.
Figure 4.16. – Characteristics of firms when receiving public grants or private investments,
median, cumulative 2008–2017
Age Number of employees
Total sales Total assets
According to Figure 4.16, firms receiving funding from accelerators are the youngest, and the
smallest in terms of number of employees, total sales and assets. Their median age is 1 year
and they employ a median of 4 persons. The median sales and the value of assets are
approximately EUR 40 000 and EUR 160 000, respectively. VC later stages are granted to the
most mature firms in the comparison by all measures, except age. A median firm receiving VC
66
later stage investments is 6 years old, with 33 employees and an annual turnover of
EUR 1.8 million. Its total assets are worth EUR 6.3 million.
Regarding firms receiving funding from public entities other than H2020, there are some
remarkable differences between types of instruments. Public entities providing funding to
innovative companies target relatively mature and large firms. A median firm receiving a grant
other than the SME Instrument is 4 years old, employing 9 workers. Regarding the financial
performance of firms targeted by other public grants, they have a median annual turnover of
EUR 0.13 million and EUR 1.5 million of total assets. Thus, in terms of age, assets and
employees, firms receiving other public grants resemble firms receiving VC early-stage
investments, while their median sales are lower.
Firms supported by the SME Instrument are on average 6 (phase 1) and 8 (phase 2) years old
and have 9 employees. In terms of turnover, their median sales are EUR 0.19 million (phase 1)
and EUR 0.88 million (phase 2). Their assets are worth EUR 1.5 million (phase 1) and
EUR 4 million (phase 2). Comparing firms funded by SME Instrument phase 1 with firms
targeted by private VCs, one can observe that, in terms of total assets, sales and employees,
they resemble firms that receive early-stage funding. In terms of age, they are, however, more
similar to firms receiving VC later-stage funding. This could indicate that firms supported by
the SME Instrument phase 1 are small, with relatively high asset values, but with low levels of
sales. On the other hand, firms receiving SME Instrument phase 2 seem to be intermediate
between firms that also raise early and later stages, but are longer established.
Summing up, the above findings indicate that considerable differences exist between the
volumes and patterns of funding of innovative firms provided by public and private entities.
The analysis also reveals that different types of funding entities target different types of firms.
67
4.5. Key takeaways
Box 4.2 brings together the key takeaways of Section 4.
▪ Venture capitalists become the GUO of the target company only

under limited circumstances (always fewer than 10% of
occurrences).
▪ Venture capitalists are usually interested in investing in
companies that have already raised previous rounds of VC
transactions.
▪ Raising a CVC does not influence the type/rounds of other VC
Key takeaways
deals the company could raise in addition.
▪ Since its introduction, the H2020 SME Instrument has become an
important source of public funding for SMEs, contributing 50 %
of the total amount of public grants in 2017.
▪ 65 % of firms receiving public grants also raised private VC
investments.
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5. The impact of venture capital on target companies
This section investigates how VC investments might affect the performances of VC-backed
firms. In particular, it examines whether or not firms that have raised VC investments grow
more than their non-VC-backed counterparts.
Most of the results emerging from the related empirical literature suggest that VC enables
target companies to outperform non-VC-backed companies (Gompers and Lerner, 2001;
Denis, 2004; Inderst and Müller, 2009; Bertoni et al., 2011; Martì et al., 2013). Firms’
performances are generally measured with quantitative indicators such as employment, total
assets, revenues and sales, consistently showing a positive impact of VC funds on growth
(Pavlova and Signore, 2019). In particular, sales and employment seem to be the most
recurrent indicators. Engel (2002), Davila et al. (2003), Engel and Keibach (2007) and Bertoni
et al. (2011) find that VC-backed firms grow faster in terms of employees. According to
Alemany and Martì (2005), Bertoni et al. (2011) and Puri and Zarutskie (2012), the sales of
target companies in Spain, Italy and the United States, respectively, increase after they raise
a VC investment. Lastly, Manigart and Van Hyfte (1999), Alemany and Martì (2005), and
Chemmanur et al. (2011) find a positive impact of VC investments on the total assets of target
companies in Belgium, Italy, Spain and the United States.
The analysis underlying this section hinges upon three relevant indicators, already used in the
rest of this report, and extensively adopted in the literature, i.e. total assets, total sales and
the number of employees. Furthermore, these three indicators jointly characterise the
European Commission definition of SMEs. Based on findings presented in the previous
sections, this section investigates whether or not any impact of VC on growth shows
heterogeneous behaviours in terms of (i) different classes of age of the target company, (ii)
round of investment, i.e. early vs later stages, and (iii) type of VC investment, i.e. institutional
vs corporate. All the results will be also subject to a set of robustness tests. The analysis of the
impact of VC investments on relevant indicators builds on the matched DB presented in
Section 2 (47).
Before we move to the empirical analysis, the levels of total assets, total sales and number of
employees of target companies before and after the VC investment are descriptively
compared. The results are shown in Figure 5.1.
(47) For each VC-backed company, the matched DB associates the contract terms of the VC deal (i.e. the amount, the deal date, the type
of investment or the funding round, the currency, and the name and geographical location of the venture capitalist(s)) with the
financial information about the VC-backed company available from Orbis’s balance sheet (e.g. total assets, total debt, turnover,
number of employees). Then we exploit the panel dimension of the matched DB: the identifier is the VC deal, with financial information
for the corresponding VC-backed firm for each year of the sample period (2008–2017) and with information on the VC investment in
the year of the deal.
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Figure 5.1. – Impact of VC investments on relevant indicators of the target companies: left,
total assets (thousand EUR); middle, total sales (thousand EUR); right, number of employees
After VC
Before VC
0 200 400 600 800 1000 1200
thousands €
Interestingly, when observing companies after they raise the VC investment, it emerges that
on average they look larger according to all the three variables inspected. First, the median
amount of total assets of firms that have already raised a VC is more than twice that of
companies that have not yet been targeted by VC financing (i.e. EUR 2.1 million vs
EUR 0.8 million). Second, the median amount of total sales in companies that have received
VC is approximately five times that of others (i.e. EUR 1.1 million vs EUR 0.2 million). Third,
firms targeted by VC employ on average twice as many staff as others (i.e. 16 vs 8 employees).
These findings constitute preliminary evidence that VC investments have a positive effect on
target companies, despite being only descriptive and performed on aggregate numbers of
firms before and after investments completed in different periods. In order to estimate more
precisely the benefits of introducing VC investments to target companies, a difference-in-
differences (DiD) approach (48), in which the treatment is the completion of a VC investment,
is implemented. Leveraging on the fact that the treatment is staggered along the overall
sample (i.e. VC investments are heterogeneously distributed over the sample period), the
analysis compares the difference between the control group (companies that have not yet
raised VC) and the treatment group (companies that have raised VC) before and after the
introduction of the treatment for our relevant outcome variables, i.e. total assets, total sales
and number of employees. The empirical strategy is presented in Section 5.1.
The highlights of this section are reported in Box 5.1.
(48) According to DiD terminology, the treatment is the intervention (e.g. a policy or an event) under investigation, the treatment group is
the group of units that has been the target of the intervention, and the control group is the group of units that has not been the target
of the intervention. The fact that our control group is composed of companies that are ultimately targets of a VC investment (i.e. our
treatment), even though observed in the period prior to the investment, should assure the comparability of the treatment and control
groups.
70
▪ This section investigates the impact of VC investments on three

measures of growth of the target companies adopted in the
empirical literature, i.e. total assets, total sales and number of
employees.
Highlights
▪ It explores the potential heterogeneity of this impact, based on
relevant features of the transaction (i.e. round and type of the
investment) and of the target company (i.e. its age).
▪ The empirical analyses survive a set of robustness tests.
5.1. Empirical strategy

This section presents the empirical strategy to investigate the potential benefits of VC
investments on target companies. Specifically, the DiD approach, in which the treatment is
the VC investment, is adopted. This model observes for each company of the panel the effect
of raising a VC investment on three relevant business indicators, i.e. total assets, total sales
and number of employees. In other words, the average effect of raising VC on the treatment
group is compared with the average effect on the control group, to check for possible
statistically significant differences, by using annual company-level panel data for the period
2008–2017. The original pool is composed of nearly 9 000 deals, distributed over more than
5 000 target companies based within the EU.
The baseline model is estimated as follows:
𝑌𝑖𝑡 = 𝛼 + 𝛽𝑑𝑉𝐶𝑖𝑡 + 𝜙𝑖 + 𝜙𝑡 + 𝛾𝑡𝑟𝑒𝑛𝑑𝑖𝑡 + 𝜖𝑖𝑡 , (1)
where Yit is the natural log of total assets, total sales or number of employees of the target
company, depending on the specification of the model. Moreover, dVCit is the treatment
variable, which takes the value of 1 since the year in which the company received the first VC
deal, and 0 otherwise (49). All the estimations include target company (φi) and year (φt) fixed
effects, to take into consideration unobserved heterogeneity across firms and shocks common
to all companies in each year t, respectively. In addition, a second set of estimations includes
company-specific linear time trends, trendit, to check for any temporal pattern independent
of the treatment status. Lastly, 𝜖𝑖𝑡, is the error term, clustered at the target company level.
(49) If a company has raised more than one VC investment in the period, the treatment starts in the year the company raised the first VC
investment, to avoid inconsistencies in the definition of the control group.
71
Hence, 𝛽 is the DiD estimate of the effect of raising the first VC investment on total assets,
total sales or number of employees of the target company, depending on the specification.
5.2. Baseline results

The results of the first set of regressions are provided in Table 5.1. In particular, in column 1
the estimates of equation (1) are documented, including only target company and year fixed
effects. The results show that raising the first VC investment is associated with a 1 % significant
increase (1.153) in the (log of) total assets of target companies. A significant increase emerges
also when performing the same estimation using as dependent variables total sales and the
number of employees, with the two estimated coefficients being equal to 0.551 and 0.378,
respectively (as shown in columns 3 and 5).
Table 5.1. – Baseline results

Total assets (ln) Total sales (ln) Employees (ln)
Dependent variable (1) (2) (3) (4) (5) (6)
VC 1.153*** 0.712*** 0.551*** 0.136 0.378*** 0.236***

(0.048) (0.049) (0.081) (0.092) (0.036) (0.039)
Observations 11 503 11 503 7 158 7 158 7 297 7 297

Year fixed effect Yes Yes Yes Yes Yes Yes
Company fixed effect Yes Yes Yes Yes Yes Yes
Company*trend No Yes No Yes No Yes
Adj. R-squared 0.758 0.841 0.767 0.797 0.793 0.844
Note: VC is a dummy variable that takes the value 1 from the year of the first VC deal raised by the target company up to an
exit strategy, and 0 otherwise. Standard errors, clustered at the target company level, are shown in parenthesis. ***, ** and
* indicate significance at the 1 %, 5 % and 10 % levels, respectively.
At the same time, the change in the dependent variables through time (assets, sales or
employment) could be due to occurrences not related to the VC investment. To account for
this, a set of company-specific linear time trends, which affect the estimated DiD coefficient,
is included. Specifically, while the sign of the coefficients remains positive in all the
estimations, the impact of raising the first VC on the target company is statistically significant
only on total assets and the number of employees, while it is not for total sales (p-value:
0.138). Moreover, the magnitude of the coefficients is reduced in all cases.
In line with the existing literature, the effect of having received a VC investment on the growth
of total assets, sales and number of employees materialises almost immediately after the first
round of VC finance is raised (Alemany and Martì, 2005; Davila et al., 2003; Bertoni et al., 2011;
72
Guo and Jiang, 2013). Results also indicate that firms receiving VC funding after having
successfully passed the screening of venture capitalists may transmit a positive reputational
signal that might attract new customers and high-quality employees, as well as increasing their
sales (Davila et al., 2003). The increase in total assets, sales and number of employees may
also indicate that the start-up implemented a successful business model that is spurring
growth. It may also signal that the probability of success of the venture has increased,
whereas, conversely, the risk of failure has reduced. Hence, the VC funding not only provides
resources for the financing needs but may also contribute to accelerating the growth of the
firm.
5.3. Robustness checks
5.3.1. Common trend assumption

The validity of the DiD method depends on the actual presence of pre-treatment common
trends for target companies in the treatment (companies that have raised a VC investment)
and control (companies that have not yet raised a VC investment) groups. To check for the
validity of the pre-treatment common trends assumption, the Autor test (Autor, 2003) is
performed by estimating equation (1) again with the inclusion of interaction terms of yearly
dummies and our treatment variable for all the pre-treatment periods. In line with the
empirical literature (50), the pre-treatment interactions are referred to as ‘leads’. For the pre-
treatment common trends assumption to hold, it is necessary that the coefficients of these
interaction terms be not statistically significant. This would mean that the trends in dependent
variables (i.e. total assets, total sales and number of employees) are the same for both the
control and treatment groups before the treatment. The same estimation also includes the
‘lags’, i.e. the interaction terms between the year dummies after the treatment and the
treatment variable. Specifically, the model includes yearly lags up to the second year of
investments, and then a ‘long-term’ lag, which takes the value of 1 after the third year after
the investments to control for more persistent effects. In more formal terms, the following
equation is estimated:
𝑌𝑖𝑡 = ∑9𝑗=0 𝛽−𝑗 𝑉𝐶𝑖,𝑡−𝑗 + ∑2𝑗=1 𝛽+𝑗 𝑉𝐶𝑖,𝑡+𝑗 + 𝛽𝑡=3−8 𝑉𝐶𝑖,𝑡=3−8 + 𝜙𝑖 + 𝜙𝑡 + 𝛿𝑡𝑟𝑒𝑛𝑑𝑖𝑡 + 𝜖𝑖𝑡 ,
(2)
where the first term (∑9𝑗=0 𝛽−𝑗 𝑉𝐶𝑖,𝑡−𝑗 ) includes all anticipatory effects except for the reference
year, the second term (∑2𝑗=1 𝛽+𝑗 𝑉𝐶𝑖,𝑡+𝑗 ) accounts for the first two lags after the investment
and the third term (𝛽𝑡=3−8 𝑉𝐶𝑖,𝑡=3−8) describes the long-term effect (51). The DiD common
trends assumption holds if the estimated coefficients of the first terms are zero. Moreover, if
the lags are positive and statistically significant, some conclusions on the persistency of the
(50) See, for instance, Ferraresi et al. (2020).

(51) The average effect considering the period since the third and up to the eighth year after the investment.
73
impact could be drawn. Figure 5.2 plots the results of the estimation of equation (2), showing
no significant effect of the leads up to the year in which the target company raises the first VC
investment.
Figure 5.2. – Test on common trend assumption: ln of total assets (left panel), ln of total sales
(middle panel) and ln of number of employees (right panel)
1 .5
.6
Number of Employees (log)

.5
.4
0
Total Assets (log)
0 Total Sales (log)

.2
-.5
-.5 0
-.2
-1 -1
5 years before 4 years before 3 years before 1 year before adoption 1 year after 2 years after after adoption 5 years before 4 years before 3 years before 1 year before adoption 1 year after 2 years after after adoption 5 years before 4 years before 3 years before 2 years before adoption 1 year after 2 years after after adoption
First VC Investment First VC Investment First VC Investment
Note: Plots of the coefficients (and their 95 % confidence intervals) for the estimation of equation (2). The reference years
are t – 2 for total assets and total sales, and t – 1 for number of employees.
Moreover, the coefficients in the year of treatment are always positive, although statistically
significant only in the cases of total assets and number of employees, consistently with the
baseline results shown in Table 5.1. Interestingly, the lags up to the second year after the
treatment are positive and significant at the 5 % level in all specifications, with the long-term
effect always being lower in magnitude. These findings suggest that the positive effect appears
from the year of treatment (except for sales), persists the following 2 years and then degrades
and eventually almost disappears after two years from the treatment. Altogether, the results
of the test should assure the validity of the common trend.
5.3.2. Placebo treatment

A further robustness test is conducted on the treatment to check its validity. Specifically, this
analysis aims to detect any previous (‘anticipatory’) effects, adopting a ‘placebo treatment’.
The placebo treatment assumes that the target company raised its VC investment before it
actually did. The anticipatory effect is set 2 years before the transaction (52). A positive and
statistically significant coefficient emerging in this framework could cast some doubts on the
validity of the empirical strategy. Reassuringly, as shown from the results in Table 5.2, the
effect of estimating the anticipated placebo treatment 2 years before the true date of the VC
investments is not statistically significant, corroborating the validity of our empirical strategy.
(52) A 1-year anticipation has been excluded, as the completion of a VC transaction is not an immediate process but typically requires from
3 months (Fried and Hisrich, 1994; Gompers et al., 2020) to 1 year (Pearce and Barnes, 2006). During this period, the company may
reap some market benefits from the public announcement of the VC deal. Conversely, if a longer anticipation (3 years or more) is
adopted in the construction of the fake treatment, the main results are not significantly affected.
74
Table 5.2. – Placebo treatment
Dependent variable (1) (2) (3)
Placebo-VC 0.116 –0.034 0.009

(0.071) (0.116) (0.050)
Observations 14 033 8 911 8 988

Year fixed effect Yes Yes Yes
Company fixed effect Yes Yes Yes
Company*trend Yes Yes Yes
Adj. R-squared 0.860 0.824 0.867
Note: Placebo-VC is a dummy variable that takes the value 1 from 2 years before the first VC deal raised by the target company
up to an exit strategy, and 0 otherwise. Standard errors, clustered at the target company level, are shown in parenthesis. ***,
** and * indicate significance at the 1 %, 5 % and 10 % levels, respectively.
5.4. Heterogeneous effects

This section analyses the effect of the first VC investment on the target company along
different dimensions to account for any heterogeneous effect. The estimations are performed
using the specification of the model that includes target company and year fixed effects, and
linear time trends specific to the target company.
5.4.1. Age of the target company

The age of the target company when it obtained the VC investment could be one source of
heterogeneity. The empirical evidence suggests that, on average, younger firms grow at a
faster pace (Nichter and Goldmark, 2009), with higher growth rates documented for firms up
to 5 years of life (Lawless, 2014; Anyadike-Danes and Hart, 2018). At the same time, young
companies at earlier stages face greater difficulties in accessing external finance (Berger and
Udell, 1998, 2002; Beck et al., 2005b; Beck and Demirgüç-Kunt, 2006; Hall, 2008; Fraser et al.,
2015; Lee et al., 2015; Pellegrino, 2018). Hence, one could expect that the youngest and
innovative firms with access to an external source of finance could benefit more than the
others when receiving a VC investment.
To test whether VC investments have different impacts on target companies based on their
age, the following model is estimated:
𝑌𝑖𝑡 = 𝛼 + 𝛽𝑑𝑉𝐶𝑖𝑡 + 𝛾𝑑𝑉𝐶𝑖𝑡 ∗ 𝐴𝐺𝐸𝑖𝑡 + 𝜙𝑖 + 𝜙𝑡 + 𝛿𝑡𝑟𝑒𝑛𝑑𝑖𝑡 + 𝜖𝑖𝑡 , (3)
75
where AGEit is a dummy variable taking on the value of 1 for target companies older than
5 years in the year of the VC transaction (53). Consequently, in this framework  is the DiD
differential estimate of the effect of raising VC investments on the usual dependent variables
for older target companies with respect to younger ones.
Results in Table 5.3 show that, as expected, younger firms benefit more from VC transactions
in terms of total assets (+ 0.760), total sales (+ 0.216) and number of employees (+ 0.254). This
is confirmed by the negative and significant signs of all the estimated interaction terms, which
suggest that the coefficient for older firms is always significantly lower than the one estimated
for younger companies. Nevertheless, while growing less, older firms still increase their total
assets (+ 0.538) and number of employees (+ 0.173), with the differences between older and
younger being negative and statistically significant (– 0.222 and – 0.304, respectively).
Conversely, significant effects on total sales are not detected. These findings are coherent with
the literature showing that younger firms grow more than older ones after receiving external
financing (Becchetti and Trovato, 2002; Robb, 2002).
Table 5.3. – Heterogeneous effect: age of target company

VC 0.760*** 0.216** 0.254***

(0.049) (0.095) (0.041)
VC*OLD –0.222*** –0.304*** –0.081***
(0.035) (0.076) (0.029)
Linear combination: VC + VC*OLD 0.538*** –0.089 0.173***

Observations 11 507 7 158 7 305
Adj. R-squared 0.842 0.798 0.845
Note: VC is a dummy variable that takes the value 1 from the year of the first VC investment up to an exit strategy, and 0
otherwise. OLD is a dummy variable that takes the value 1 for firms older than 5 years, and 0 otherwise. Standard errors,
clustered at the target company level, are shown in parenthesis. ***, ** and * indicate significance at the 1 %, 5 % and 10 %
levels, respectively.
(53) This threshold for the age is consistent with similar definitions of young firms provided in previous studies by Criscuolo et al. (2014)
and Hallak and Harasztosi (2019) among others. Nevertheless, according to Gompers (1996), the definition is robust to slightly
anticipated (4 years) cut-offs. In a separate estimation, available upon request, we have found that anticipating the threshold to
4 years does not qualitatively change the results of the analysis presented in Table 5.4.
76
5.4.2. Round of investment
This section investigates any difference between early and later stages of VC investments in
impact on total assets, total sales and number of employees. The rationale lies in the fact that
the growth rates may vary considerably between the different rounds of VC investment. While
for early-stage financing of start-ups annual rates of growth over 100 % are considered usual,
they would be considered exceptional for companies in later-stage financing (Alemany and
Martì, 2005). Then, the hypothesis that early-stage VC financing may spur firms’ growth at
faster rates than later-stage financing is tested.
Accordingly, the analysis is restricted to strictly institutional VC, comparing early (first and
second rounds) and later (third to ninth) stages. To test if later stages of VC investments show
differential impacts on target companies, the following model is estimated:
𝑌𝑖𝑡 = 𝛼 + 𝛽𝑑𝑉𝐶𝑖𝑡 + 𝛾𝑑𝑉𝐶𝑖𝑡 ∗ 𝐿𝐴𝑇𝐸𝑅𝑖𝑡 + 𝜙𝑖 + 𝜙𝑡 + 𝛿𝑡𝑟𝑒𝑛𝑑𝑖𝑡 + 𝜖𝑖𝑡 , (4)
where LATERit is a dummy variable taking on the value of 1 for target companies raising a later-
stage investment. Consequently, in this framework  is the DiD differential estimate of the
effect of raising a later-stage investment with respect to an early-stage one on the usual
dependent variables.
Table 5.4. – Heterogeneous effect: round of investments

VC 0.475*** 0.065 0.125***

(0.032) (0.064) (0.028)
VC*LATER –0.282*** –0.133 –0.081***
(0.035) (0.083) (0.026)
Linear combination: VC + VC*LATER 0.193*** –0.068 0.043*

Observations 20 146 12 716 13 357
Adj. R-squared 0.843 0.794 0.870
Note: VC is a dummy variable that takes the value 1 from the year of the VC early-stage investment up to an exit strategy,
and zero otherwise. LATER is a dummy variable that takes the value 1 for later-stage investments, and 0 otherwise. Standard
errors, clustered at the target company level, are shown in parenthesis. ***, ** and * indicate significance at the 1 %, 5 %
and 10 % level, respectively.
77
As presented in Table 5.4, early stages of investments show stronger effects on total assets
(+ 0.475) and the number of employees (+ 0.125) than later stages. At the same time, the
impact of later-stage investments on the two variables is still positive in both cases, although
both the magnitude and the significance of the estimated coefficient decline. These results
are in line with the finding of Kerr et al. (2014) that VC-backed companies receiving early-stage
financing improved their growth rates in several dimensions, such as assets, survival rate,
employment and patenting, among others. Lastly, when restricting the sample to early and
later stages, no impact of VC on total sales is detected.
5.4.3. Type of investment

To conclude, this section investigates possible heterogeneous impacts of VC investments on
target companies due to the nature of the investor. Specifically, it tests whether or not
investments from institutional VCs show different impacts on performances of target
companies from CVC investments.
Some variability due to the different reasons behind the strategies of institutional and
corporate venture capitalists is expected. On the one hand, the aim of a CVC investment is
more skewed towards setting up strategic partnerships between the investor and the target
(Gompers and Lerner, 2000), typically materialising in the joint development of products or
services complementary to the offer portfolio of the investor, and based on technologies
developed by the target company (Dushnitsky and Lenox, 2006) (54). IVCs, instead, are more
interested in the growth of the target company per se, since the VC is aimed at increasing its
market value in view of a future exit strategy (Gompers and Lerner, 2001; Cumming and Johan,
2008). Based on this interpretation, it might be expected that benefits from growth would be
shared between investor and target company when the technologies developed by the target
are complementary to those of the investor (Da Rin et al., 2013), unlike companies targeted
by IVCs.
Within this framework, the following model is estimated:
𝑌𝑖𝑡 = 𝛼 + 𝛽𝑑𝑉𝐶𝑖𝑡 + 𝛾𝑑𝑉𝐶𝑖𝑡 ∗ 𝐶𝑉𝐶𝑖𝑡 + 𝜙𝑖 + 𝜙𝑡 + 𝛿𝑡𝑟𝑒𝑛𝑑𝑖𝑡 + 𝜖𝑖𝑡 , (5)
where CVCit is a dummy variable taking the value 1 for CVC investments, and 0 otherwise. In
this framework  is the parameter measuring the effect on total assets, total sales and number
of employees of raising a CVC investment rather than institutional VC.
(54) According to an alternative interpretation, incumbent players could decide to invest in entrant firms as corporate venture capitalists
to prevent them from raising funds from IVCs, thus discouraging new competitors in their market and sector (Norbäck and Persson,
2009). If this is the case, different survival rates for VC- and CVC-backed firms after the investment should be observed. This analysis
is left for future work.
78
Table 5.5. – Heterogeneous effect: type of investments
VC 0.423*** 0.054 0.103***

(0.028) (0.050) (0.023)
VC*CVC –0.046 0.055 –0.102
(0.187) (0.311) (0.081)
Linear combination: VC + VC*CVC 0.378** 0.108 0.001

Observations 24 810 15 699 16 773
Adj. R-squared 0.843 0.799 0.867
Note: VC is a dummy variable that takes the value 1 from the year of the VC institutional (including business angel) investment
up to an exit strategy, and 0 otherwise. CVC is a dummy variable that takes the value 1 for CVC investments, and 0 otherwise.
Standard errors, clustered at the target company level, are shown in parenthesis. ***, ** and * indicate significance at the
1 %, 5 % and 10 % levels, respectively.
Table 5.5 shows that the baseline results are mainly guided by institutional VC, with total
assets and number of employees positively affected by the transaction, while total sales are
not significantly affected. Moreover, looking at the CVC’s estimated coefficients, it emerges
that only total assets are positively affected (even though not differently from what happens
with institutional VC), while the number of employees and total sales do not significantly
increase owing to a CVC investment.
This last finding is consistent with the narrative that sees IVC and CVC investors have different
impacts on their target companies. While VC-backed companies benefit from the VC
investments across all growth dimensions considered, companies raising CVC show a
significant increase only in total assets. This confirms that the synergy in technology
development between the investor and the target positively affects the economic value of the
target company only (broadly proxied by its assets), while the potential benefits on the
commercial side, if any, are absorbed by the investor (55). Lastly, the absence of a positive
impact on human capital is in line with the hypothesis that CVC investors and target companies
operate in a symbiotic relationship (Ivanov and Xie, 2010), and the CVC-backed company
benefits from the knowledge and experience of the staff of the investor without increasing its
number of employees (Colombo and Murtinu, 2017).
(55) Another hypothesis is that the effect on sales might materialise more slowly in the case of CVC, since corporate venture capitalists are
less inclined to speed up the process towards an exit strategy than IVCs (Colombo and Murtinu, 2017).
79
Key takeaways
▪ Altogether, the first VC investment has a positive impact on the

growth of target companies, in terms of both total assets and
number of employees, while mixed results emerge when looking
at total sales depending on the empirical specification.
▪ Results are heterogeneous and depend upon the features of
target companies (age) and transactions (round and type).
− Younger firms benefit more from VC transactions, in terms

of total assets, total sales and number of employees, than
older ones. The effect on older companies is still positive but
Key takeaways lower.
− CVC investments affect the growth of only total assets, while

institutional VC investments also show a positive impact on
total sales and number of employees.
− Later rounds of VC investments show a lower impact on the

growth of target companies than early stages.
▪ The estimated positive impacts of VC investment survive a set of
robustness tests.
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6. The definition of small and medium-sized enterprises and venture capital
investments
This section presents and discusses the current definition of SMEs provided by the European
Commission (2003). In particular, it is put in the context of similar definitions either adopted
in the economic literature or implemented by international organisations, public authorities
and countries.
While discussing in combination some of the challenges to this definition raised by different
scholars and practitioners, this analysis focuses on one specific implication of the European
Commission’s definition of SMEs, i.e. how being the target of a VC investment may affect the
status of an SME in the EU.
Specifically, it investigates to what extent the change of the threshold related to the VC
exception may have an impact on VC investments, using the small subset of companies that
have obtained H2020 grants and had already been targeted by VC investments at the time of
the grant application. The highlights of this section are reported in Box 6.1.
▪ This section provides an overview of the current European

Commission definition of SMEs and puts it in the context of
similar definitions.
▪ The analysis proposes a methodological approach to quantify
how being the target of a VC investment may affect the status of
Highlights an SME in the EU.
▪ By focusing on one specific implication of the European
Commission definition of SMEs, this section investigates to what
extent the change of the threshold related to the VC exception
may have an impact on VC investments.
6.1. What are small or medium-sized enterprises?

Small and medium-sized enterprises (SMEs) are considered among the most important
contributors to economic growth, for instance through the creation of new jobs, the
promotion of competition, and the spillover of knowledge and innovation (see, among others,
Audretsch, 2002, 2007; Thurik and Wennekers, 2004; Beck et al., 2005a; Acs and Szerb, 2007;
Aghion and Jaravel, 2015). In particular, SMEs are frequently referred to as the ‘backbone’ of
81
the EU economy (Schmiemann, 2009; European Commission, 2019). For these reasons, SMEs
have been repeatedly targeted by various EU policies aimed, for instance, at improving their
access to financing, at reducing regulatory burden and improving market access, and at
supporting the transition to sustainability and digitalisation, which are currently the three
pillars underlying the ‘SME strategy for a sustainable and digital Europe’ (European
Commission, 2020b).
Given this acknowledged importance, it is crucial to investigate how differently SMEs may be
defined. Intuitively, the development and implementation of dedicated policies may be
affected by the different segmentations or categorisations of firms.
The European Commission established the current definition of SMEs in 2003 (Commission
recommendation 2003/361/EC) (56). The most important aspect considered in the definition is
the size of the firm, which is measured using three indicators: staff headcount, turnover and
balance sheet total (57). Based on these measures, the definition provides two conditions for
a firm to be considered an SME: (i) it has fewer than 250 employees and (ii) either its turnover
is no more than EUR 50 million or its balance sheet total is no more than EUR 43 million.
When a further differentiation within the SME category is necessary, a firm is defined as micro
if it has fewer than 10 employees and either the turnover or the balance sheet total is no more
than EUR 2 million, and as small if the employees are fewer than 50 and either the turnover
or the balance sheet is no more than EUR 10 million, while the residual group is composed of
medium-sized enterprises (58). Box 6.2 recaps classifications of SMEs together.
Box 6.2. – Rules on size underlying the definition of SMEs
Staff Financials
Company category
headcount Turnover or Balance sheet total
SME < 250 ≤ EUR 50 million ≤ EUR 43 million
Small < 50 ≤ EUR 10 million ≤ EUR 10 million
Micro < 10 ≤ EUR 2 million ≤ EUR 2 million
Source: JRC elaborations of European Commission (2003).
(56) The definition officially came into force in January 2015. The first European Commission definition of SMEs was published in 1996
(Recommendation 96/280/EC). Major amendments to the original version include (i) the introduction of the definition of
microenterprises; (ii) the discussion on implications of VC investments on the definition; (iii) a more comprehensive definition of
independent firms.
(57) Also indicated as total assets.
(58) However, in the definition these categories are not described as exclusive. This implies that, in principle, microenterprises are also
small enterprises, and both micro and small enterprises, together with medium-sized enterprises, are included in the wider category
of SMEs.
82
In addition to the size of the individual firm, a second relevant aspect is that a firm may be in
some way linked to a larger group. According to the European Commission definition, in this
case the evaluation on the size should be conducted including (part of the) staff headcount
and the turnover or balance sheet data of the overall group. More precisely, the
recommendation describes companies as ‘autonomous’, ‘partners’ or ‘linked’. Typically, an
autonomous company is fully independent, meaning that it has no shares in other companies
and no other companies have shares in it. However, a firm is also considered autonomous if it
owns holdings accounting for less than 25 % of the capital (or voting rights) in one or more
other companies, and if other parties have holdings of no more than 25 % of its own capital
(or voting rights) (59). Conversely, two firms are considered partners when they establish an
inter-firm relationship based on reciprocal holdings of ownership shares, but neither can exert
legal control over the other. This happens when a company owns more than 25 % but no more
than 50 % of the capital (or voting rights) of another one. Lastly, two enterprises are linked
when they form a proper group, i.e. when one controls the majority of the shares (or the
voting rights) of the other (60).
The quantification of the size is straightforward for an autonomous firm, being limited to the
firm itself. Conversely, to calculate the headcount and financial data of partner companies, it
is necessary to add to the figures of one firm the related figures of all the partners, weighted
by the quota of owned shares. Lastly, for linked firms, the totality of the linked company’s
figures must be added to those of the company being evaluated for SME status. Therefore, a
company that may be categorised as an SME if assessed as a separate entity could be
evaluated differently if in partnership or linked with others.
The definition further specifies that a company only loses SME status if it passes the thresholds
(on staff and monetary indicators) for two consecutive years (Article 4.2). The rationale for
this is to provide stability for enterprises that have a successful commercial year but then fall
back under the ceilings the next year. However, this ‘grace period’ does not apply if the passing
of the thresholds is due to a change of ownership, which is seen as permanent instead of
temporary (61).
Alongside the official EU definition, a large variety of criteria have been adopted in academic
economic literature regarding what an SME is (Aybar-Arias et al., 2003; Gilmore et al., 2013)
even when EU-based companies are analysed. Several scholars have used the staff headcount
as the only indicator defining an SME (Hatten, 2011). Most analyses define SMEs as companies
in the range of 0–250 employees (Greene and Travis, 2002; Ayyagari et al., 2003; Ruiz-Santos
et al., 2003; Kushnir et al., 2010; Rossi et al., 2015). However, a certain degree of variability
emerges even within this category of works. Specifically, some works set the cut-off at 100
(59) Some exceptions to the 25 % share are envisaged by the definition, including a case in which the firm receives investments from
business angels or venture capitalists. We discuss these exceptions in more detail in the following section.
(60) Under a more extensive interpretation, the link between firms also emerges when one company either can autonomously appoint or
remove the management or can exercise a dominant influence (based on signed contracts or agreements) on the other one.
(61) VC investment is considered such a permanent change and thus the loss of the status is immediate.
83
employees (Voulgaris et al., 2000; Becchetti and Trovato, 2002; Papadogonas, 2007; Uhlaner
et al., 2013), 200 employees (Robson and Bennet, 2000; Segura and Toledo, 2003) or 500
employees (Levy et al., 2002; Corso et al., 2003; Çokpekin and Knudsen, 2012), even in the
context of EU-based companies. In more limited cases, the criterion adopted is exclusively the
turnover (Lopez-Gracia and Aybar-Arias, 2000; Bellucci et al., 2013, 2014), or both turnover
and balance sheet total (Pérez et al., 2002), while the number of staff headcount is not taken
into consideration. Conversely, others scholars have identified SMEs following the European
Commission definition, in its full version (Deloof et al., 2007; Eikebrokk and Olsen, 2007;
Varum and Rocha, 2013; Bellucci et al., 2019a,b) or with some limited variations, also based
on the characteristics of the investigated country (Ikonomou, 2011).
Similarly, a unique definition of SMEs does not exist even among international organisations
or public authorities (Buculescu, 2013; Berisha and Pula, 2015). Two relevant examples are
documented in Box 6.3.
Box 6.3. – SME definitions from the Organisation for Economic Co-operation and
Development and the World Bank
International
Micro Small Medium
organisation
OECD 1–9 employees 10–49 employees 50–249 employees
a. < 10 employees a. < 50 employees a. < 300 employees

World Bank b. < EUR 0.1 million b. < USD 3 million b. < USD 15 million
(International Finance annual turnover annual turnover annual turnover
Corporation) c. < EUR 0.1 million c. < USD 3 million c. < USD 15 million
balance sheet total balance sheet total balance sheet total
Source: JRC elaborations from OECD (2019) and World Bank (2019).
First, the Organisation for Economic Co-operation and Development (OECD) proxies the size
of the firm based solely on the staff headcount. Specifically, to be considered SMEs, firms
should employ no more than 249 staff (OECD, 2019) (62), the same as in the European
Commission’s definition. Conversely, it does not define thresholds with reference to annual
turnover or balance sheet total. Second, the World Bank adopts a multicriteria approach,
based on the same indicators as used by the European Commission. Nevertheless, two
differences emerge. On the one hand, the monetary criteria (i.e. on turnover and balance
sheet) should apply jointly and are not alternatives as in the European Commission’s
(62) We should acknowledge that in other publications (e.g. OECD, 2005) the thresholds adopted are quite different, with a firm defined
as an SME when it has fewer than 500 employees. In that case, there are four, instead of three, underlying subcategories of SMEs: 1–
9, 10–49, 50–99 and 100–499.
84
definition. On the other hand, the thresholds are slightly different for all the indicators.
Specifically, the limit set for the staff headcount for being considered an SME is larger (i.e. 300
vs 250), while the monetary criteria are significantly lower (i.e. USD 15 million vs
EUR 50 million for turnover and USD 15 million vs EUR 43 million for balance sheet total).
Another source of heterogeneity in the SME definition comes from the country where the
firm is based. Countries may adopt different definitions of SMEs. For instance, according to
the OECD (2010) the upper threshold of the staff headcount determining whether or not a
firm is an SME is 99 for New Zealand, 150 for Mexico, 199 for Australia and Korea, 249 for
Japan and Turkey, and 499 for Canada and the United States.
Altogether, it emerges that a common, shared and unique definition of SMEs is not available,
although the debate around the homogenisation of this definition is still ongoing. At the same
time, the European Commission definition is an established reference, at least for EU-based
companies. This prominent position in the debate has attracted some comments in the
economic literature, sometimes oriented to challenge the European Commission definition by
detecting possible biases.
The main issues pertain to three areas. First, several scholars have discussed some drawbacks
of the indicators underlying the current SME definition, in particular the weight given to the
staff headcount. This choice could be motivated by the fact that information on the headcount
is generally objective and easily applicable (Berisha and Pula, 2015), it can hardly be directly
controlled by the employer (Filion, 1990), and it is not artificially inflated by price development
(Ganguly, 1985), such as turnover or total assets. Conversely, a simple headcount may give
less immediate indications in the current labour market, in which part-time and temporary
work are becoming more common (Curran and Blackburn, 2001). More generally, the staff
headcount may not reflect the real size of a small company (Osteryoung and Newman, 1993).
Moreover, it is not obvious that a growing company should employ more workers to act as a
competitive player (Buculescu, 2013). Further concerns were also raised with regard to the
asset indicator. In particular, in some cases high assets could hide inefficiencies in the firms’
capital allocation (Gibson and van der Vaart, 2008).
Second, the adopted thresholds are somewhat arbitrary, and should be adjusted based on
some relevant factors, which could act as sources of heterogeneity. Among them, it emerges
that cross-country accounting differences may affect turnover and, mostly, total assets. Fixed
and intangible assets could be valued differently based on different accounting systems
(Buculescu, 2013). Similarly, different tax systems could affect the monetary indicators of the
SME definitions (Berisha and Pula, 2015). Another possible source of heterogeneity is related
to the size of the population, which mostly affects the headcount staff indicator. For instance,
according to Soomro and Aziz (2015), the number of employees should be parametrised to
the total population of the country where the company is based, to guarantee cross-country
comparability of the size of companies. Moreover, thresholds for the monetary indicators
should be modified from time to time based on inflation and exchange rates (Stokes and
85
Wilson, 2010). Lastly, the size of a firm should be relativised based on the industrial sectors in
which it operates (Loecher, 2000; Hatten, 2011). Firms show inherent differences across
sectors concerning all the indicators underlying the European Commission’s definition of
SMEs. In particular, the number of employees (Stokes and Wilson, 2010), the turnover and the
total balance sheet (Gibson and van der Vaart, 2008) are on average different between
sectors.
Third, according to some other works, additional indicators could be included in the
definition of an SME as well or instead, for instance profitability and net worth (Henschel and
Heinze, 2018). In some other cases, current indicators are slightly modified to overcome some
of the criticisms, for instance by indexing the monetary indicators to one common currency or
to the country’s gross national income per capita at purchasing power parity (Gibson and van
der Vaart, 2008).
6.2. Implications of European Commission definition of small and medium-sized

enterprises for venture capital and business angel investments
VC and business angel investments could play an important role in determining the status of
a EU-based firm, according to the European Commission definition. Besides the conditional
definition of the size of an individual SME, an SME may also lose its status if it raises a VC
investment and (at least one of) the VC investor(s) receives more than 50 % of its equity shares
(or voting rights).
The application of the 50 % threshold clearly constitutes an exception to the standard rules
on the determination of an autonomous company included in the European Commission’s
definition. Article 3.2(a–d) of the definition includes venture capitalists and business angels
within the restricted list of entities (63) whose investments up to 50 % of the shares of the
target firms are not sufficient for them to be considered partners (64). In other words, these
firms are still assessed as autonomous, and thus fully eligible to be considered SMEs if all the
other criteria are respected. On the other hand, in the case of an investment by a single VC
above 50 %, the company itself, the VC and all the other investees in which it has a majority
are considered as a group and consequently, in most cases, these companies lose their SME
status.
This exception seems to be essentially related to the benefits of VC investments to target
companies, especially in the first stages of their activities, and is seen as a way to encourage
the creation of enterprises and the equity financing of SMEs. As documented in recital 10 of
the European Commission definition, VC – and particularly business angel – investors can
(63) This list also includes public investment corporations; universities and non-profit-making research centres; institutional investors,
including regional development funds; autonomous local authorities with an annual budget of less than EUR 10 million and fewer than
5 000 inhabitants.
(64) In the case of business angels only, the financial involvement in the same company must also be below EUR 1.25 million.
86
valuably ‘give relevant advice to new entrepreneurs’ and ‘provide smaller amounts [of equity
capital] at an earlier stage of the enterprise’s life’.
Hence, being considered an SME based on the European Commission’s definition is not just a
matter of classification, but is a prerequisite for access to several EU SME-dedicated support
schemes. Among others (65), there is H2020, the largest EU programme providing public grants
to small and medium-sized innovative firms. Young and innovative firms may benefit from
raising both private and public investments, so the definition and application of this threshold
could be crucial.
Despite the clear benefits of VC investment to the growth of target firms, documented in
Section 5 of this report, some concerns about these exceptions could still emerge. A recent
work by Crehan (2020) presents a comprehensive discussion of some possible drawbacks in
the application of these rules.
The first one is specifically related to the exception granted to VC investments in the
definition of SMEs. In particular, the European Commission definition does not fully take into
consideration some specific peculiarities of the legal structuring of VC activities, which could
in principle affect the application of the exception. In particular, venture capitalists organise
their activities through agreements often based on a limited partnership, a legal framework
in which two different parties operate, i.e. one general partner (GP) and at least one limited
partner (LP). While LPs play the role of the investors, by risking their own capital limited to the
amount invested, the GP takes care of managing and running the fund subscribed by the LPs,
as well as supporting the growth of target companies. Consequently, from a purely
operational point of view, the venture capitalist should be identified with the GP. At the same
time, the GP mainly invests LPs’ funds in target companies, while it generally uses its own
financial resources in minimal amounts. Given these differences, it is necessary to clarify
whether the concept of venture capitalist included in the SME definition coincides with the
GP, the LPs or both. Understandably, this choice is not without consequences. The first – and
more practical – reason is that the evaluation of the thresholds (and consequently of the
possible links between target company and VC) may generate different results depending on
how ‘venture capitalist’ is defined. Conversely, the second reason is more directly linked with
the rationale underlying the rule, i.e. the reason why a VC-backed firm should be considered
linked to its VC investor. On the one hand, given its guidance role for target companies, the
GP usually sits on their boards, and can therefore more directly control them. At the same
time, it usually holds only minority shares in the target company, and therefore cannot directly
steer it through its shares. On the other hand, LPs rarely sit on the boards, but they may be
more likely to own (individually or jointly) more than 50 % of the shares. Therefore, the VC
(65) The European Commission also provides public support for SMEs through many other financing and guarantee scheme programmes
such as the programme for the competitiveness of enterprises and small and medium-sized enterprises (COSME), the employment
and social innovation programme (EaSI), the connecting Europe facility (CEF) and the cultural and creative sector guarantee facility
(CCSGF).
87
should be identified with the GP if the rule underlying the definition aims to privilege control
over ownership, whereas it should be identified with the LPs if the ownership is considered
more relevant. Moreover, according to Crehan (2020), the target company has no access to
the staff, revenues or assets of the VC fund. Consequently, including these figures in the
computation of the overall numbers of the target company in its assessment would not
correctly represent the real size of the company.
The second issue concerns broader aspects related to the assessment of the independence
of firms and hence may be applied both to venture capitalists and to other standard investors.
The first concern is related to the definition of thresholds per se. The choice of the 25 % and
50 % thresholds could be interpreted as arbitrary, since there is no scientific evidence that this
limit should be applied. Second, based on this definition, the notions of ownership and control
seem to be considered interchangeable. This is proven by the fact that the same 50 %
threshold applies to both concepts in the definition. Nevertheless, in principle ownership and
control are different – and in some cases divergent (Lin et al., 2011, 2013) – concepts.
Ownership is strictly related to shares in the firm and to the connected legitimate claims on
profits, while control is associated with the right to take strategic decisions (Marks, 1999),
generally measured by the voting rights, expressed as having a seat on the Board of Directors.
Given the different natures and aims of these two concepts, it is not obvious that they are
perfect substitutes as in the European Commission’s definition of SMEs (66). Therefore, it would
be useful to clarify what both criteria are intended to measure and determine, including in the
light of the increasing literature on the heterogeneous effects of ownership and control on
firms’ results (67).
6.3. Case study: what if the thresholds change?

This section proposes a methodological approach to quantify to what extent the change of
the threshold related to the VC exception may have an impact on VC investments. In
particular, it focuses on the small subset of companies that jointly satisfies the following three
conditions: (i) they have received an SME Instrument grant from the European Commission
H2020 scheme in our period of analysis; (ii) they have also raised a private VC investment in
the same period; (iii) the VC investment was raised after the SME Instrument was granted (68).
It focuses on this subset of companies because, having already received a VC investment by
the time they applied for the H2020 grant, they have survived the scrutiny of the H2020
commission and have been assessed, evaluated and certified as SMEs. In other words, since
these firms have been certified as SMEs after this scrutiny, we have assurance that the VC
(66) This is particularly the case for VC investors, in the light of the implications of the standard GP–LP legal framework of VC investments.
(67) Evidence on the expected benefits of privileging one measure over the other is mixed. For instance, according to Zhou et al. (2017),
owners are more effective than controllers at producing a positive impact on firms’ performances. Conversely, other works find a
positive correlation between independent directors and firm performance (Peng et al., 2015).
(68) Given that we need to use information on both public grants and VC transactions, we rely on the matched DB adopted in Section 4.
The same limitations on the representativeness of the overall figures discussed above also apply here.
88
investments they raised before the public grant did not cross the thresholds. Consequently, it
might be stated that these grants would have been lost if a lower threshold had been applied.
Figure 6.1 shows the changes in the number of grants and amounts, respectively, after having
applied the three conditions related to the VC exception for the definition of the status of
SME. Specifically, panel A represents the number of the grants, and panel B the related
amounts granted (69).
Altogether, applying the first of our three conditions to our dataset (Figure 6.1, panels A and
B), we match 124 SME Instruments transactions (tagged as ‘H2020’), amounting to
approximately EUR 74 million. Second, in approximately 68 % of these transactions,
companies given an SME Instrument grant also received a private VC investment in our period
of analysis (‘H2020 and VC’). Hence, when the second condition is applied, the analysis is
restricted to a sample of 84 companies that obtained an SME Instrument grant, accounting
for approximately EUR 57.1 million. Lastly, when we introduce the third condition, the focus
of our analysis is further restricted to 61 transactions (accounting for approximately
EUR 38.7 million) in which the SME Instrument is granted after a VC investment.
This set of grants could have been endangered if the 50 % threshold for VC transactions had
been lowered to the usual 25 % applied to all the other private investors.
In order to test what would happen if the threshold were lowered ex post, it is necessary to
discriminate target companies for which there is at least one investor owning more than 25 %
of the shares in the year of the SME Instrument grant (70). If there is not a GUO with at least
25 % of the shares (i.e. GUO25), it means that the company could be considered autonomous
based on the European Commission’s definition. In this exercise, this amount coincides with
24 grants (tagged as ‘No GUO25’) accounting for approximately EUR 14 million. Second, the
exception to the rule applies only if the GUO25 is a venture capitalist. For this reason, a further
28 cases (accounting for EUR 22.4 million) in which other different investors are the GUO25
(i.e. ‘GUO25 = third investor’) were excluded from this sample. The final set of SME Instrument
transactions that would not have been granted if the threshold had been 25 % (i.e.
‘GUO25 = VC investor’), instead of the current 50 %, is thus identified. In this exercise, there
are nine such cases, accounting for approximately EUR 2.3 million.
Altogether, based on this illustrative exercise, which has several limitations (71), a lower
threshold for third-party investor affects a limited number of firms. These cases represent
approximately the 15 % of SME Instrument granted after a private VC transaction (equal to
(69) We should acknowledge that for 8 out of 124 H2020 grants the information on the amounts is missing in our dataset.
(70) In cases of syndicated VC investments, the shares acquired by each VC investor involved in the transaction are considered separately
to identify the GUO of the target company, unless a formal link between VC investors is in place (e.g. they form a group through direct
or indirect control).
(71) This analysis indicates a methodological approach but suffers from two main limitations, which should moderate any policy
implication. First, since it is an ex post investigation, it is not possible to take into consideration any strategic response to the change
in the rules by either VC investors or target companies. Second, while it is necessary to use the matched DB to conduct this analysis to
jointly exploit information on VC deals/public grants and on the target company (e.g. the GUO25), the sample analysed is not entirely
representative of the full set of SME Instruments. In other words, these results should be interpreted as illustrative and should be
tested on a wider and more representative matched DB. This analysis is left for future work.
89
the 6 % in terms of volumes), and the 7 % of the overall granted SME Instruments (equal to
the 3 % in terms of volumes).
Figure 6.1. – Methodological approach to quantify possible changes in VC thresholds: a case

study (number (panel A) and total amounts (million EUR; panel B) of the grants)
Panel A
Panel B
90
6.4. Key takeaways
▪ A change in the definition of SMEs may affect the interpretation

of their impact on the economy, and experts’ evaluations of the
implementation of dedicated policies.
▪ A single shared definition of SMEs is not available. At the same
time, the European Commission definition seems to be a well-
Key takeaways known and established reference for EU-based companies.
▪ Conditional on all the limitations of our analysis, this section
proposes a methodological approach to quantify to what
extent a change in the threshold related to the VC exception
may have an impact on VC investments.
91
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List of boxes
Box 2.1. – Highlights of Section 2............................................................................................. 10
Box 2.2. – Definitions of funding instruments ......................................................................... 13
Box 2.3. – Key takeaways of Section 2 ..................................................................................... 20
Box 6.2. – Rules on size underlying the definition of SMEs ..................................................... 82
Box 6.3. – SME definitions from the Organisation for Economic Co-operation and
Development and the World Bank........................................................................................... 84
103
List of figures
Figure 2.1. – Comparison of deals/volume by EU countries: number of deals (left), VC
investment raised (right), total 2008–2018 ............................................................................. 12
Figure 2.2. – Relationship between types of VC investors and stages of company’s life ........ 14
Figure 2.3. – Contributions of different VC-backed instruments to the total at the worldwide
level, 2008–2018 (billion EUR (left) and number of deals (right)) ........................................... 15
Figure 2.4. – Contributions of different VC investment instruments to the total, United States,
2008–2018 (billion EUR (left) and number of deals (right))..................................................... 16
Figure 2.5. – Contributions of different VC-backed instruments to the total, China, 2008–2018
(billion EUR (left) and number of deals (right)) ........................................................................ 17
Figure 2.6. – Distribution of instruments in the matched DB .................................................. 19
Figure 3.1. – Worldwide distribution of VC activity by target country (volumes and
percentages), 2008–2018......................................................................................................... 22
Figure 3.2. – Worldwide distribution of VC activity by investor country (volumes and
percentages), 2008–2018......................................................................................................... 23
Figure 3.3. – Distribution of VC investments by origin of investment (domestic, abroad, and
mixed), 2008–2018................................................................................................................... 24
Figure 3.4. – Target country for VC investments: cumulative investment volumes and number
of deals raised by firms based in EU Member States, 2008–2018 (billion euro (left) and number
of deals (right)) ......................................................................................................................... 26
Figure 3.5. – Target country for VC investments: changes in investment volumes and numbers
of deals raised by firms based in EU countries, 2008–2018 (%) .............................................. 26
Figure 3.6. – Investor country for VC investments: cumulative investment volumes and
number of deals performed by venture capitalists based in the EU, 2008–2018 (billion euro
(left) and number of deals (right)) ........................................................................................... 27
Figure 3.7. – Investor country for VC investments: changes in investment volumes and
numbers of deals raised by firms based in EU Member States, 2008–2018 ........................... 28
Figure 3.8. – Origin of the VC investments by category, 2008–2018 (% of total investments)
.................................................................................................................................................. 30
Figure 3.9. – Cumulative investment volumes as a percentage of cumulative NFC loans, 2008–
2018 .......................................................................................................................................... 30
Figure 3.10. – VC investments (volumes) raised in the EU by investment type, 2008–2018
(billion euro (left) and % of total investments (right)) ............................................................. 31
Figure 3.11. – VC investments raised in the EU, by investment type, 2008–2018 (number of
deals (left) and % of deals (right)) ............................................................................................ 32
Figure 3.12. – Currency of VC investments as a percentage of total investments in the EU,
2008–2018 ................................................................................................................................ 33
Figure 3.13. – Currency of VC investments as a percentage of total investments in the euro
area, 2008–2018....................................................................................................................... 34
104
Figure 3.14. – VC investments by industrial macrosectors (NACE Rev. 2 – broad structure),
2008–2017 (%).......................................................................................................................... 35
Figure 3.15. – Median VC investment amounts by round and type of investment, 2008–2017
.................................................................................................................................................. 38
Figure 3.16. – Median duration of VC investments and confidence interval, 2008–2017 ...... 39
Figure 3.17. – Relationship between duration of VC investments and amount invested, 2008–
2017 (number of deals (left y-axis) and median cumulative amount (right y-axis) vs duration
of investment) .......................................................................................................................... 40
Figure 3.18. – Ratio between VC investments and firms’ total assets, 2008–2017 (median and
confidence interval) ................................................................................................................. 41
Figure 3.19. – Ratio between VC investments and firms’ total debt, 2008–2017 (median and
confidence interval) ................................................................................................................. 41
Figure 3.20. – Number of employees, total sales and total assets of firms when receiving a VC
investment, 2008–2017 (median and confidence interval of number of employees (left), total
sales (centre) and total asset (right)) ....................................................................................... 42
Figure 3.21. – Employees, total sales and total assets by round of investment, 2008–2017
(medians of number of employees (left), total sales (centre) and total assets (right)) .......... 43
Figure 3.22. – Median age of firms when receiving different rounds of investment, 2008–2017
.................................................................................................................................................. 44
Figure 4.1. – Distribution of VC-backed firms across categories of ownership, by round of
investment................................................................................................................................ 51
Figure 4.2. – Distribution of firms receiving one or more VC-backed deals, 2008–2017
(cumulative %) .......................................................................................................................... 52
Figure 4.3. – Distribution of deals by investor and number of deals, 2008–2017 (cumulative %)
.................................................................................................................................................. 53
Figure 4.4. – Percentage of target firms receiving only CVC or receiving CVC and private VC
financing, 2008–2017 (cumulative %) ...................................................................................... 55
Figure 4.5. – Number of VC deals (by type) granted to firms that have also received CVC, 2008–
2017 (cumulative %) ................................................................................................................. 56
Figure 4.6. – Comparison of median investment volumes (by type), based on the chronology
of investments, cumulative 2008–2017: first investment raised (left), second or later
investment (right)..................................................................................................................... 56
Figure 4.7. – Cumulative volumes by type (SME Instrument, other public grants and VC), 2008–
2017: volumes (left) and number of deals (right) (%) .............................................................. 59
Figure 4.8. – Cumulative SME Instrument grants by country: volumes (million EUR, left) and
numbers of grants (right), 2014–2017 ..................................................................................... 60
Figure 4.9. – Cumulative SME Instrument grants as a percentage of total public grants by
country: volumes (left) and numbers of deals (right), 2014–2017 .......................................... 60
Figure 4.10. – Public grant amounts by category: median of cumulative amount by category
of grant, 2008–2017 ................................................................................................................. 61
105
Figure 4.11. – Percentages of firms receiving only public grants and receiving public grants and
private VC financing, cumulative 2008–2017 .......................................................................... 62
Figure 4.12. – Percentage (left) and number (right) of VC deals (by category) raised by firms
that also received public grants, cumulative 2008–2017 ........................................................ 62
Figure 4.13. – Comparison of volumes (by category), cumulative 2008–2017 ....................... 63
Figure 4.14. – Evolution of SME Instrument (phase 1 and 2) grants by industrial sectors (NACE
Rev. 2 – macrosector), 2014–2017 (% volumes (left) and % deals (right)) .............................. 65
Figure 4.15. – Other public grants by industrial sector (NACE Rev. 2 – macrosector), 2008–
2017 (% volumes (left) and % deals (right)) ............................................................................. 65
Figure 4.16. – Characteristics of firms when receiving public grants or private investments,
median, cumulative 2008–2017 ............................................................................................... 66
Figure 5.1. – Impact of VC investments on relevant indicators of the target companies: left,
total assets (thousand EUR); middle, total sales (thousand EUR); right, number of employees
.................................................................................................................................................. 70
Figure 5.2. – Test on common trend assumption: ln of total assets (left panel), ln of total sales
(middle panel) and ln of number of employees (right panel) .................................................. 74
Figure 6.1. – Methodological approach to quantify possible changes in VC thresholds: a case
study (number (panel A) and total amounts (million EUR; panel B) of the grants)................. 90
Figure A.1.1. – Comparison between matched DB and full dataset in terms of amounts and
deals of VC investments in EU, 2008–2017............................................................................ 111
Figure A.2.1. – Corporate venture capital cumulative investments in the EU, 2008–2017
(million EUR) ........................................................................................................................... 112
Figure A.2.2. – Cumulative corporate venture capital volumes and deals raised by EU
countries, 2008–2017 (million EUR (left) and number of deals (right)) ................................ 113
Figure A.2.3. – Corporate venture capital volumes (left) and numbers of deals (right) raised by
EU countries as a percentage of total venture capital investments, 2008–2017 .................. 114
Figure A.2.4. – CVC vs other VC investments, median amounts raised, 2008–2017 ............ 114
Figure A.2.5. – CVC vs other VC investments (by type), median amounts raised, 2008–2017
................................................................................................................................................ 115
Figure A.2.6. – Duration of CVC investments vs other VC investments, median, 2008–2017
(years) ..................................................................................................................................... 115
Figure A.2.7. – CVC investments by industrial macrosectors (NACE Rev. 2, broad structure):
volumes (left) and deals (right), 2008–2017 .......................................................................... 117
Figure A.2.8. – Employees, total sales and total assets of firms when receiving CVC vs other
VC, 2008–2017: median of number of employees (left), total sales (thousand EUR, centre) and
total assets (thousand EUR, right) .......................................................................................... 119
106
List of tables
Table 2.1. – Descriptive statistics about the main variables ................................................... 18
Table 3.1. – Origin of the VC investments by category ........................................................... 29
Table 3.2. – VC investments by industrial microsector (NACE Rev. 2 – four digits), 2008–2017
(cumulative %) .......................................................................................................................... 36
Table 5.1. – Baseline results..................................................................................................... 72
Table 5.2. – Placebo treatment................................................................................................ 75
Table 5.3. – Heterogeneous effect: age of target company .................................................... 76
Table 5.4. – Heterogeneous effect: round of investments ...................................................... 77
Table 5.5. – Heterogeneous effect: type of investments ........................................................ 79
Table A.1.1. – Summary statistics of available firms for matching variables at country level
................................................................................................................................................ 109
Table A.1.2. – Linking success rates (VentureSource&Orbis) of VC-backed firms at country level
................................................................................................................................................ 110
Table A.2.1. – CVC investments by industrial microsectors (NACE Rev. 2, four digits), 2008–
2017 (cumulative %) ............................................................................................................... 118
Table A.3.1. – SME Instrument (phases 1 and 2) grants by main microsectors (NACE Rev. 2,
four digits), 2014–2017 (cumulative %) ................................................................................. 120
Table A.3.2. – Public grants (excluding H2020) by main microsectors (NACE Rev. 2, four digits),
2008–2017 (cumulative %) ..................................................................................................... 121
107
Annexes
Annex 1. Further details on VentureSource and Orbis database matching
Table A.1.1 provides summary statistics of all existing companies in the Orbis txt/flat files in
the last available data release, at the time of database construction in the third quarter of
2018, to give an overview of how much information is available for each matching variable.
The coverage varies considerably between countries and matching variables. Considering
cases for which at least one of the four variables is available, the percentage of coverage
ranges from 4 % for Ireland to 93 % for Lithuania.
108
Table A.1.1. – Summary statistics of available firms for matching variables at country level
Country Total observations Website exists Phone exists Email exists Fax exists 1 of 4 exists Web (%) Phone (%) Email (%) Fax (%) 1 of 4 (%)
AT 1 184 277 225 463 444 690 236 451 211 306 499 658 0.19 0.38 0.20 0.18 0.42
BE 3 657 656 232 234 1 269 383 69 137 368 160 1 300 696 0.06 0.35 0.02 0.10 0.36
BG 1 740 485 65 353 995 805 294 728 103 586 1 038 139 0.04 0.57 0.17 0.06 0.60
CY 461 651 13 970 39 115 11 681 7 279 44 790 0.03 0.08 0.03 0.02 0.10
CZ 2 870 712 419 710 713 064 473 014 123 797 808 805 0.15 0.25 0.16 0.04 0.28
DE 3 674 927 1 221 276 1 684 167 1 123 864 1 283 054 1 828 853 0.33 0.46 0.31 0.35 0.50
DK 1 438 174 191 177 850 295 751 080 163 122 1 053 047 0.13 0.59 0.52 0.11 0.73
EE 343 900 48 202 212 569 250 392 24 561 263 757 0.14 0.62 0.73 0.07 0.77
EL 1 284 570 54 891 62 011 41 216 51 129 82 905 0.04 0.05 0.03 0.04 0.06
ES 3 991 051 399 801 1 370 218 4 341 461 333 1 549 928 0.10 0.34 0.00 0.12 0.39
FI 1 497 535 293 787 835 388 341 090 153 231 896 427 0.20 0.56 0.23 0.10 0.60
FR 2 396 566 649 381 932 398 229 339 428 630 1 295 294 0.27 0.39 0.10 0.18 0.54
HR 345 790 32 400 37 265 22 689 24 541 59 478 0.09 0.11 0.07 0.07 0.17
HU 2 060 100 65 646 104 337 478 714 61 813 528 300 0.03 0.05 0.23 0.03 0.26
IE 648 385 23 501 2 869 383 103 24 423 0.04 0.00 0.00 0.00 0.04
IT 5 759 498 631 759 1 341 457 17 553 22 143 1 613 069 0.11 0.23 0.00 0.00 0.28
LT 185 043 50 413 166 464 126 529 59 960 171 244 0.27 0.90 0.68 0.32 0.93
LU 197 509 9 884 25 255 1 396 19 632 27 957 0.05 0.13 0.01 0.10 0.14
LV 389 719 36 870 138 614 62 960 69 591 158 127 0.09 0.36 0.16 0.18 0.41
MT 95 423 7 754 26 420 4 888 4 353 29 148 0.08 0.28 0.05 0.05 0.31
NL 5 189 053 1 835 682 2 731 001 5 693 859 521 3 600 090 0.35 0.53 0.00 0.17 0.69
PL 2 426 394 540 698 954 892 563 025 407 955 1 203 676 0.22 0.39 0.23 0.17 0.50
PT 902 895 88 214 380 419 212 136 154 252 423 399 0.10 0.42 0.23 0.17 0.47
RO 2 956 096 83 637 1 623 489 125 562 94 456 1 660 154 0.03 0.55 0.04 0.03 0.56
SE 2 282 359 247 702 1 187 284 2 095 110 1 223 172 0.11 0.52 0.00 0.00 0.54
SI 439 078 32 365 125 510 60 743 34 232 138 697 0.07 0.29 0.14 0.08 0.32
SK 873 350 130 587 224 042 114 276 31 526 262 553 0.15 0.26 0.13 0.04 0.30
UK 13 515 157 1 168 762 1 228 148 404 282 7 269 1 554 748 0.09 0.09 0.03 0.00 0.12
Source: JRC elaborations on Orbis data (see Bellucci et al., 2020c).
109
Table A.1.2 shows the success rate of the matching between VentureSource and Orbis.
Table A.1.2. – Linking success rates (VentureSource&Orbis) of VC-backed firms at country level
Country VC-backed firms from VentureSource Matched Not matched Accuracy (%)
AT 450 318 132 71
BE 776 622 154 80
BG 43 27 16 63
CY 25 5 20 20
CZ 130 93 37 72
DE 5 471 4 524 947 83
DK 1 093 854 239 78
EE 92 57 35 62
EL 74 43 31 58
ES 2 234 1 614 620 72
FI 1 419 1 188 231 84

FR 7 584 5 253 2 331 69
HR 29 16 13 55
HU 254 91 163 36
IE 846 204 642 24
IT 1 264 902 362 71
LT 65 47 18 72
LU 109 63 46 58
LV 55 37 18 67
MT 25 14 11 56
NL 1 796 1 514 282 84
PL 334 253 81 76
PT 227 146 81 64
RO 63 37 26 59
SE 2 621 1 798 823 69
SI 29 20 9 69
SK 39 25 14 64
UK 11 971 5 898 6 073 49

Total 39 118 25 663 13 455 66
Source: JRC elaborations on matched DB (see Bellucci et al., 2020c).
VentureSource provides 39 118 entries for the variable ‘Company Name’, which refers to the
name of the VC-backed company. An issue in VentureSource is that some companies are listed
twice because of a slight difference in spelling (e.g. Agro Innovacio Kft vs Agro-Innovacio Kft)
or listed in the language of the company where the company is located and in English (e.g.
110
Steigenberger Akademie vs Steigenberger Academy GmbH). In this work 39 118 is taken as
100 % since no other external benchmark is available.
Before proceeding to download the relevant variables for the Orbis identifiers, we took
additional steps. First, we removed duplicates by looking at company names to identify the
unique Bureau van Dijk identifier by intersection. Then, we capitalised all company names in
Orbis because of differences between the Orbis and VentureSource files (e.g. UAB IMPULS LTU
vs Impuls LTU). Lastly, we manually searched for more than 2 500 observations with missing
information on company website with the aim of finding their Orbis identifiers. To retrieve
additional information, we proceeded as follows: (i) we copied the name of the firm with the
missing website from the VentureSource file; (ii) we pasted the name of the firm with the
missing website into the online Orbis website; (iii) based on VentureSource company
information (address, city, country and company overview) together with web searching, we
tried to understand which company (if any) listed by Orbis was our target firm; (iv) once we
had detected the firm in the online Orbis website, we copied and pasted the Orbis identifier
into the output file of the matched DB. In the matched DB, for 18 413 companies out of 39 118
Orbis did not provide any type of information except for the Orbis identifier and company
name.
Figure A.1.1 provides a comparison between VentureSource and the matched DB in terms of
amounts and numbers of deals of VC investments in the EU.
Figure A.1.1. – Comparison between matched DB and full dataset in terms of amounts and
deals of VC investments in EU, 2008–2017
It emerges that the matched DB covers between 30 % and 50 % of the total VC-backed volume
and between 20 % and 30 % of the number of deals included in the whole VentureSource
database, depending on the year of analysis. At the same time, the trends in both
VentureSource and matched DB time series seem quite similar, especially when looking at
111
volumes, although yearly changes seem less pronounced in absolute terms in the case of the
matched DB (especially the growth in 2017).
Annex 2. Overview of corporate venture capital

A.2.1. Changes in volumes and numbers of deals in the European Union
The development of CVC in the EU has followed a similar trend to other VC investments.
Figure A.2.1. – Corporate venture capital cumulative investments in the EU, 2008–2017
(million EUR)
Figure A.2.1 shows that, within the EU, the amount of CVC outstanding moved from
approximately EUR 300 million in 2008 to more than EUR 1.4 billion in 2017. This represented
a growth of over EUR 1 billion in less than 10 years, equivalent to a fourfold increase, already
net of withdrawals due to firms’ exit strategies. Nevertheless, this development has followed
different patterns across the EU.
Figure A.2.2 shows the overall level of CVC raised by EU Member States from investors
worldwide, during the period 2008–2017. The left panel indicates the volume of investments
in millions of euro, while the right panel indicates the number of completed deals.
Heterogeneous distributions of CVC across the EU emerge in both the volumes and the
numbers of deals. Specifically, investments are concentrated in a limited number of countries.
The amount invested in the top 5 countries (i.e. Germany, Sweden, Spain, Ireland and Italy)
covers approximately 80 % of the total CVC investments in the period between 2008 and 2017.
112
Figure A.2.2. – Cumulative corporate venture capital volumes and deals raised by EU
countries, 2008–2017 (million EUR (left) and number of deals (right))
The results do not differ substantially when investigating the number of deals. However,
Ireland shows a low number of deals with respect to the overall amounts raised, suggesting
that the average amount of each deal was higher than the EU average. On the other hand,
among countries with more developed CVC markets (i.e. with at least five deals in our time
sample), France emerges as the one with the highest number of deals in proportion to the
volumes raised.
Furthermore, looking at the contribution of CVC to the total of the VC investments made
between 2008 and 2017, some Member States seem to be more likely to receive CVC than
other forms of investment, once they are found to be VC targets.
More specifically, Figure A.2.3 indicates that in Luxembourg, Ireland, Italy and Sweden CVC
investment formed higher proportions of total VC investments in terms of volumes and
numbers of deals. It follows that, although these investments are a minority of VC
investments, some countries might be proportionally more constrained by specific policies
related to CVC.
Altogether, the CVC market emerges as still limited and, above all, concentrated in a few
countries, generally the most advanced economies. Therefore, a possible policy objective
could be to favour the entry of similar forms of investment in countries where the CVC is
scarcely widespread or completely absent.
113
Figure A.2.3. – Corporate venture capital volumes (left) and numbers of deals (right) raised
by EU countries as a percentage of total venture capital investments, 2008–2017
Note: Six countries with up to five deals raised in the period 2008–2017 were excluded from the analysis and the graphs, to
avoid biases in the interpretation of ratios of very small values.
A.2.2. Differences between corporate venture capital and other forms of venture capital
This paragraph analyses CVC investments in more detail by comparing their median amount
with that of all the other forms of VC. Figure A.2.4 shows the result of the analysis.
Figure A.2.4. – CVC vs other VC investments, median amounts raised, 2008–2017
114
First, CVC investments show a median value of EUR 2 million, about 33 % higher than the
median value of the other VC investments (EUR 1.5 million). Nevertheless, VC shows different
levels of amounts when looking at different rounds of investments.
Figure A.2.5. – CVC vs other VC investments (by type), median amounts raised, 2008–2017
Figure A.2.5 shows that CVC has a higher value than most VC investment types, with the sole
exception of VC later stages. CVC investments are more likely to be comparable to the first
stages of VC (i.e. VC earlier stages) than to those categories more typically associated with the
first phases of firms’ lives, such as accelerator, business angel or VC seed. At the same time,
the median amount of CVC investments is only about one third of VC later stages ones.
The duration of CVC investments compared with that of other VC investments is depicted in
Figure A.2.6. As described above, the investment duration is measured as the difference
between the observed year and the year of the investment, net of any divestment news
indicating the closing, sale (e.g. M&A) or public listing of the company.
Figure A.2.6. – Duration of CVC investments vs other VC investments, median, 2008–2017
(years)
115
This graph also shows the median duration over the period 2008–2017 of investments
received by firms before the period of analysis, in order to take account of the history of all
the investments they have received.
Interestingly, an important difference between the duration of CVC investments and that of
other VC investments appears to emerge. On average, CVC seems to have a longer life
expectancy than other forms of VC. In our sample, CVC shows a median duration of more than
8 years, compared with less than 5 years for the other forms of VC.
This could be a sign that CVC investment is less volatile than other VC. Corporations adopting
CVC investments may be more interested in acquiring or learning from the technological and
innovative capabilities of the target firm than in investing to get a rapid sale or listing.
This finding could also be policy relevant, since a widespread use of this kind of instrument
can foster a more balanced development of the business ecosystem. Two quite different forms
of firms may coexist, with reciprocal beneficial effects. On the one hand, large companies,
which are more solid, ensure production and employment on a large scale in different
productive sectors; on the other hand, SMEs or even start-ups, which show a stronger capacity
to innovate, are more responsive to technological and market-driven changes (Siota et al.,
2020). The development of a collaboration through CVC may allow the first group to stay at
the technological frontier, being updated on the latest market developments, and the second
group to obtain further resources to develop their projects, as well as practical knowledge and
assistance on the commercial and production fronts.
A.2.3. Features of corporate venture capital target firms

This section analyses some features of firms that are targets of CVC investments. The purpose
of this investigation is to understand whether or not CVC investors seek different
characteristics in target firms from what other venture capitalists do. Accordingly, CVC target
firms’ sectors, as well as relevant financial indicators (i.e. number of employees, total sales
and total assets), are observed.
As illustrated in Section 3, Figure A.2.7 shows the distribution of CVC investments by broad
sector.
116
Figure A.2.7. – CVC investments by industrial macrosectors (NACE Rev. 2, broad structure):
volumes (left) and deals (right), 2008–2017
The same three broad sectors cover about 70 % of total (CVC) investments. Compared with
general VC, the distribution between professional, scientific and technical activities,
information and communication, and manufacturing is slightly more homogeneous, especially
when looking at the number of deals (right panel). Conversely, unlike the VC general case, the
remaining 30 % is not shared among several sectors, but in terms of volumes it is concentrated
in three other main sectors: human health, accommodation and food service, and
administrative and support services. The same cannot be said of the numbers of deals, which
suggests that individual deals of significant amounts can more significantly influence the
distribution between sectors. However, altogether, there does not seem to emerge a
substantial difference from the general level shown in Figure 3.14.
Furthermore, the same phenomenon is investigated using the maximum level of sector
granularity, i.e. microsectors. Table A.2.1 shows microsectors accounting for at least 1 % of
total CVC investments in each broad sector, up to the top three.
The microsectors most represented are like those identified in Table 3.2. They are mainly
attributable to the three areas already identified as bio-oriented and pharmaceutical research,
engineering, and financial technology. Altogether, these areas – covered by eight microsectors
marked with icons in Table A.2.1 – account for approximately two thirds of total CVC
investments. Therefore, it seems that the concentration of investments in these microsectors
is more pronounced than in general VC, which included in the three areas 15 microsectors
accounting for approximately 60 % of total VC investments.
In the specific case of CVC investments, the concentration in high-tech sectors seems to be
confirmed and further accentuated than in general VC. This finding is in line with other works
emphasising that corporate venturing operates in areas/sectors in which technology transfer
(e.g. in terms of patents and innovative ideas) is more strongly developed (Siota et al., 2020).
This may have some relevant policy implications: favouring the diffusion of CVC investments
117
can facilitate faster technology transfer, allowing innovative projects at the proof of concept
stage (developed by start-ups) to be developed into marketed products and services, and
taking advantage of larger-scale production through the investor company.
Table A.2.1. – CVC investments by industrial microsectors (NACE Rev. 2, four digits), 2008–
2017 (cumulative %)
% of broad % of total
Broad sector Microsector (four digits)
sector investments
Professional, Research and experimental development on natural
sciences and engineering 80 27
scientific and
technical
activities Engineering activities and related technical consultancy 8 3
Manufacturing Manufacture of builders’ ware of plastic 55 10
Information and Wired telecommunications activities 53 13

communication
Computer-programming activities 19 5
Motion picture, video and television programme production

8 2
activities
Financial and Activities of holding companies
56 2
insurance
activities
Other financial service activities, except insurance and
44 2
pension funding
Human health
and social work
Renting and operating of own or leased real estate 100 8
activities
Accommodation
and food service
Restaurants and mobile food service activities 100 7
activities
Administrative
and support
Other business support service activities 93 5
service activities
In addition to the sector, the analysis provides insights into whether or not CVC investors are
interested in firms with similar characteristics to firms that are targets of other VC
investments. Section 3 has already shown that VC-backed firms are SMEs. Specifically, they
118
can be microenterprises or small enterprises, based on the European Commission definition.
Figure A.2.8 compares the characteristics underlying the definition of SMEs (i.e. number of
employees, total sales and total assets) across CVC and other VC target companies.
Figure A.2.8. – Employees, total sales and total assets of firms when receiving CVC vs other
VC, 2008–2017: median of number of employees (left), total sales (thousand EUR, centre) and
total assets (thousand EUR, right)
Interestingly, companies receiving CVC are on average larger than enterprises receiving other
forms of VC. Specifically, the median number of employees, total sales and total assets in the
year of investment are always higher in cases of CVC than other VC investments. This
difference is more marked when looking at total sales (by a factor of 2), while it is more limited
in terms of the number of employees and total assets (in both cases a factor of 1.5).
On average, companies raising CVC investments belong to the SME category. Specifically, their
identikit matches a small enterprise, as they have more than 10 employees and more than
EUR 2 million in total assets. In contrast, other VC investors are more likely to target smaller
firms, i.e. microenterprises. This difference can be important in order to more precisely target
policies that specifically incentivise CVC compared with other forms of VC.
119
Annex 3. Further details of microsectors of companies receiving public grants
Table A.3.1 is designed to detect the importance of the sectors at NACE Rev. 2 (four digits)
level in which venture capitalists invest more, still associating them with the macrosectors
presented in Figure 4.14 not to miss the broader view. Specifically, they are microsectors
targeted by at least 1 % of total SME Instrument investments.
Table A.3.1. – SME Instrument (phases 1 and 2) grants by main microsectors (NACE Rev. 2,
four digits), 2014–2017 (cumulative %)
% of broad % of tot SME

sector Instrument
Professional, scientific Other research and experimental development on natural
and technical activities sciences and engineering 49 15
Research and experimental development on

13 4
biotechnology
Manufacturing
Manufacture of engines and turbines, except aircraft,

13 6
vehicle and cycle engines
Manufacture of medical and dental instruments and

10 5
supplies
Information and
communication Computer-programming activities 70 15
Other software publishing 19 4
Wireless telecommunication activities 6 1
Wholesale and retail

trade Retail sale through mail order houses or internet 41 2
Note: Top three NACE Rev. 2 microsectors (if they contribute at least 1 % to total H2020 investments) are selected within
each NACE Rev. 2 macrosector.
Table A.3.2 is designed to detect the importance of the sectors at NACE Rev. 2 (four digits)
level in which venture capitalists invest more, still associating them with the macrosectors
presented in Figure 4.15 not to miss the broader view. Specifically, they are microsectors
targeted by at least 1 % of total other public grants (hence excluding SME Instrument)
investments.
120
Table A.3.2. – Public grants (excluding H2020) by main microsectors (NACE Rev. 2, four digits),
2008–2017 (cumulative %)
% of broad % of total
sector public grants
Professional, scientific Research and experimental development on biotechnology 34 17
and technical activities
Other research and experimental development on natural

30 15
sciences and engineering
Manufacturing Manufacture of pharmaceutical preparations 27 10
Manufacture of engines and turbines, except aircraft, vehicle

22 8
and cycle engines
Manufacture of electronic components 17 6
Information and Computer-programming activities 37 2

communication
Computer programming, consultancy and related activities 25 1
Others Travel agency activities 27 2
Combined office administrative service activities 17 1
Other financial service activities, except insurance and

15 1
pension funding
Note: Top three NACE Rev. 2 microsector (if they contribute at least 1 % to total public grants) are selected within each NACE
Rev. 2 macrosector.
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KJ-NA-30480-EN-N
doi:10.2760/076298
ISBN 978-92-76-26939-7

Venture Capital in Europe: Evidence-Based Insights About Venture Capitalists and Venture Capital-Backed Firms

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Venture Capital in Europe: Evidence-Based Insights About Venture Capitalists and Venture Capital-Backed Firms

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Venture Capital in Europe

Evidence-based insights about Venture Capitalists and venture capital-

PDF ISBN 978-92-76-26939-7 ISSN 1831-9424 doi:10.2760/076298

Luxembourg: Publications Office of the European Union, 2021.

© European Union, 2021

All content © European Union, 2021.

1. Introduction and motivations ............................................................................................... 8

Investment strategies of venture capitalists

Investment strategies of corporate venture capitalists

Public grants and venture capital investments

The impact of venture capital on target companies

Box 2.1. – Highlights of Section 2

▪ This section introduces and describes the dataset behind the

2.1. VentureSource database

Source: JRC elaborations of VentureSource data.

2.2. Venture capital investment types

Funding instrument Definition

Venture leasing This refers to the leasing of technical equipment by a venture-leasing

Source: JRC elaborations on VentureSource data.

Source: JRC elaborations on VentureSource data.

Source: JRC elaborations on VentureSource data.

2.3. The match between Orbis and VentureSource

Table 2.1. – Descriptive statistics about the main variables

Figure 2.6. – Distribution of instruments in the matched DB

Source: JRC elaborations on the matched DB.

Box 2.3. – Key takeaways of Section 2

Box 3.1. – Highlights of Section 3

▪ This section is an overview of VC investments at the worldwide

Figure 3.1. – Worldwide distribution of VC activity by target country (volumes and

Source: JRC elaborations on VentureSource data.

Figure 3.2. – Worldwide distribution of VC activity by investor country (volumes and

Source: JRC elaborations on VentureSource data.

Source: JRC elaborations on VentureSource data.

3.2. Venture capital in the European Union

3.2.1. Venture capital investors and target firms

Source: JRC elaborations on VentureSource data.

Source: JRC elaborations on VentureSource data.

Source: JRC elaborations on VentureSource data.

Source: JRC elaborations on VentureSource data.

Table 3.1. – Origin of the VC investments by category

Source: JRC elaborations.

Source: JRC elaborations on VentureSource data.

3.2.2. Venture capital investments versus other sources of firms’ financing

Source: JRC elaborations on VentureSource and Eurostat data.

3.2.3. Venture capital investments by category of deals

Figure 3.10. – VC investments (volumes) raised in the EU by investment type, 2008–2018

Source: JRC elaborations on VentureSource data.

Source: JRC elaborations on VentureSource data.

Figure 3.12. – Currency of VC investments as a percentage of total investments in the EU,

Source: JRC elaborations on VentureSource data.

Source: JRC elaborations on VentureSource data.

3.3.1. Venture capital investments and industrial sector analysis

Source: JRC elaborations on the matched DB.

Engineering activities and related technical consultancy 10 3

Manufacture of electronic components 22 5

Manufacture of instruments and appliances for measuring,

Other software publishing 17 4

Other information technology and computer service

Financial and Other financial service activities, except insurance and

VC 1.153* 0.712* 0.551* 0.136 0.378* 0.236***