Venture Capital as a Catalyst for High Growth

The views and opinions expressed in the research paper are those of the authors alone and do not represent, in any way, the views or opinions of the Department of Industry or of the Government of Canada.

Footnote a
Economic Research and Policy Analysis Branch
Industry Canada

Economic Research and Policy Analysis Branch
Industry Canada

September 2013


We use new data linking information on venture capital (VC) financing from Thomson Reuters with firm-level administrative data from Statistics Canada to compare VC-backed and non-VC-backed firms. In particular, we assess the impact of VC on growth of key firm-level variables. This is the first study of its kind on VC-backed firms that incorporates official financial information of enterprises operating in Canada. The richness of the data allows us to construct a control group of non-VC-backed firms using previously unavailable covariates that are often thought to be associated with the potential for high growth and the probability of receiving VC financing, e.g., R&D expenditures, participation in an R&D support program, size, age, industry, location, among others. Using a propensity score matching estimator, our results suggest that VC-backed firms outperform their non-VC-backed counterparts in growth metrics. VC-backed firms experience higher growth in sales, wages, and employment over a 5-year period while the higher growth in R&D expenditures for VC-backed firms only occur over the first year with the levels converging over the long-term. In profitability, we find no statistical difference between VC-backed and non-VC-backed firms. Our results provide robust empirical evidence that VC financing is associated with faster firm growth and an acceleration of the innovation and commercialization process.

Table of Contents

  1. Introduction
  2. Data
  3. Matching VC-Backed and Non-VC-Backed Firms
  4. Results
  5. Conclusion
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