High-tech Start-up Access to Public Funds and Venture Capital: Evidence from Italy

Several studies have highlighted that new technology-based firms (NTBFs) are often financially constrained, with these constraints hindering firms' growth and even threatening their survival. Even though the provision of venture capital (VC) may allow firms to overcome these constraints, VC supply may be fairly limited, especially in bankbased countries such as Italy and the cost of accessing VC funds may be too high for most young high-tech firms. Policy makers may try to relax the financial constraints suffered by NTBFs through the provision of direct subsidies to firms. Technology policy may also aim at signalling the high quality of subsidized firms to external investors, reducing information asymmetries. However, policy makers may not be able to identify those firms that most need public aid. In this paper we investigate the determinants of NTBF access to public funds and venture capital. This analysis enables us to draw some considerations both on the investment selection criteria adopted by venture capitalists and on the existing Italian technology policy's capacity to address NTBFs' financial constraints. In order to do so, we consider a sample composed of 550 Italian NTBFs that operate in both manufacturing and services and resort to the estimation of a dynamic bivariate survival model so as to highlight simultaneously the determinants of firms' access to both these modes of financing. The results of our estimates only partially confirm the relevance of founders' competencies as important drivers of VC investment decisions, pointing to the multifaceted nature of human capital, and suggest the presence of inefficiencies in venture capital markets that are not alleviated by the existing Italian technology policy measures towards high-tech start-ups.