Do publicly backed venture capital investments promote innovation? Differences between privately and publicly backed funds in the UK venture capital market

This paper examines the link between publicly backed venture capital funds and business innovation in the UK venture capital market. In examining this relationship, the research empirically analyses the characteristics of 4113 investment deals made to 2359 UK based companies. We use patents as a proxy for innovation and find that obtaining investment solely from publicly backed VC funds, reduces the probability of the recipient company to apply for a patent compared with those companies that receive investments from private VC funds. In contrast, the probability of a company to have a patent or have applied for one does not vary significantly between companies that receive investments from both the public and the private sector and those companies that receive investments solely from private VC funds. The results have implications for both policy makers and practitioners and stress the importance of co-investments between publicly backed and private venture capital funds to promote innovation.