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12-12-2017 - - 0 comments
VC success : Mandarins vs Merits

“Show me the way to a New Silicon Valley” – is the cry of governments across the world. Countless schemes have been forged to bring some American pizzazz into a country’s startup investment ecosystem.

 

The outcome? Bureaucrats may end up distorting the healthy functioning of their country’s VC industry, concludes business professor Milosevic (2017). She finds that government stimulus of venture finance leads to inefficient capital allocation. The best stop becoming the biggest.

 

They draw their results from France, a country where consecutive administrations have sought to boost the climate for early stage investments through direct investments and partnerships. This has changed the rules of the VC game. When looking at drivers of a fund size, the research team finds that being bureaucrat-friendly is an essential box to tick. VC partners with public sector experience or a degree from an elite French university are more successful in their fundraising exercises.

 

Such social capital does not translate into operational outperformance. French funds with more successful exits tend to be run by partners with investment banking, R&D or entrepreneurial experience. Former founders are particularly apt at orchestrating IPO exits.

 

Still, if they’re a Jacques-no-mates they will struggle to grow their fund in France…

 

Milosevic (2017). “Skills or networks? Success and fundraising determinants in a low performing venture capital market” Research Policy Vol. 47:1

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