The performance of governmental venture capital firms: A life cycle perspective and evidence from China

This paper investigates the difference between governmental venture capital firms (GVCs) and private venture capital firms (PVCs) from the perspective of a VC life cycle. Compared to PVCs, GVCs have less success over the cycle as a whole. We argue that the lack of a link between current performance and future fundraising, and a less efficient compensation mechanism for those involved may be important contributions to the explanation. Using data on VC investments in the Chinese market between 1991 and 2010, the empirical results show that portfolio companies backed by GVCs underperform those backed by PVCs in going public. However, the underperformance of GVC-backed start-ups is offset by the GVCs' privileged access to their local resources, especially the priority of getting listed on the domestic stock market. The results are supported by a series of robustness checks and selection bias tests.