We examine a unique dataset of Dutch companies, some of which have received venture financing. The data include detailed information on innovation activities and other company characteristics. We analyse the role of venture finance in influencing innovation strategies. We find that venture capitalists push portfolio companies towards building absorptive capacity and towards more permanent in-house R&D efforts. By contrast, we find that public funding relaxes financial constraints, but does not lead to a build-up of absorptive capacity. Our results thus highlight the special role of venture capital in shaping companies' innovation strategies.
*Published: This paper was subsequently published as The Effect of Venture Capital on Innovation Strategies, Marco Da Rin, Maria Fabiana Penas, in NBER book Entrepreneurship: Strategy and Structure (2007)
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