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Access to Finance: Impacts of Publicly Supported Venture Capital and Loan Guarantees

Nesta Working Paper 13/02
Issued: January 2013
JEL Classification: O38
Keywords: Venture capital; loan guarantee; policy; impact; SMEs; moral hazard


This paper is part of the Compendium of Evidence on the Effectiveness of Innovation Policy Intervention. This paper examines government measures to provide firms with access to finance. This covers measures that provide real financial help to firms, i.e. they are a form of financial assistance or subsidy to firms.

The two types of policy measures considered are publicly supported venture capital and government backed loan guarantees. Evaluations conducted on these measures employ a range of approaches to assess performance, some of which are simply descriptive, some of which involve comparisons but very few of which attain the level that can control for the selection bias effects that would help to measure the net impacts of policy.

One common concern in our analysis of venture capital support and credit guarantees is moral hazard. Evidence shows that even in the most 'careful' schemes borrowers adopt risky strategies. Evaluations of government supported venture capital funds show the importance of design of compensation arrangements in sharing of risk between investing bodies and investees.

The a priori assumption, which we ourselves have not made but which others may have done, that these two forms of government backed financial assistance would lead equally to innovation within the firm and the economy is difficult to establish with the evidence provided by the studies evaluated. Moreover, these two forms of financial assistance do have different purposes as they support firms at different stages of their evolution, and we would expect VC support schemes would target firms at the pre-market and more risky phase of development than credit guarantees.


John Rigby, Ronnie Ramlogan

The Nesta Working Paper Series is intended to make available early results of research undertaken or supported by Nesta and its partners in order to elicit comments and suggestions for revisions and to encourage discussion and further debate prior to publication (ISSN 2050-9820). The views expressed in this working paper are those of the author(s) and do not necessarily represent those of Nesta.