Squaring the Circle? Government as Venture Capital Investor

The government participates in the venture capital market in many different ways. This paper examines the role of the state as an investor and gives a thorough review of international trends through examples. It outlines, that contrary to direct participation that could result in the distortion of market processes, the government is increasingly contributing to the growth of venture capital market funds while including the private sector in the process. The inclusion of the private sector is important primarily because this solution ensures the selection of projects that are economically viable, promising and free from political influence, the selection of financing periods independent from election times, and the adequate expertise and  incentives of  managers  entrusted  with  the  investment’s management.  The main conclusion of the study is that only privately managed venture capital funds financed only to a lesser extent by the state allow for the adequate utilization of state resources, and thus they contribute to the achievement of economic policy objectives and improve the capital supply of young, promising companies.*

Journal of Economic Literature (JEL) code: G23, G24, G28, M13, O31.