The impact of venture capital on the productivity growth of European entrepreneurial firms: ‘Screening’ or ‘value added’ effect?

We aim to ascertain to what extent the better performance of European venture capital (VC)‐backed firms in high-tech industries is due to either ‘screening’ or ‘value added’ provided by VC investors. We compare portfolio firms' productivity growth before and after the first VC round, using a matched control group as benchmark. We show that productivity growth is not significantly different between VC and non-VC-backed firms before the first round of VC financing, whereas significant differences are found in the first years after the investment event. We also find that the value-adding services provided by VC investors ‘imprint’ the portfolio firm.

► We analyze the impact of VC funding based on productivity growth before and after the first VC round.
► We also rely on a matched sample of similar non-VC-backed firms (propensity score matching).
► Productivity growth is an efficient way to isolate value-adding effects from funding in investees.
► We find that VC impact on European firms is mostly driven by investor's value added.
► Contributions: solution to reverse causality issue and separation of screening and value added