Instituitions and Venture Capital

Abstract

Small and Medium Enterprises (SMEs) form the backbone of any economy. However, access to finance remains a key contraint to SME development and thus economic development. The Venture Capital industry has proved to be a good alternative source of financing in some countries to promote innovation and entrepreneurship. Having originated in the USA (a market based economy), it is catching up in Europe particularly in Scandinavian countries through numerous policy initiatives taken by the national governments. However, most continental European economies are traditionally bank-based and the venture capital industry has not been as successful (atleast in the last two decades) compared to USA. Past research in the field attributes this difference in performance to numerous factors but none that provides a detailed and in-depth institutional basis to it. This thesis attempts to find if the venture capital industry is more successful in a particular institutional environment or more specifically a particular kind of economic system.