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Government as Venture Capitalists in AI

In: Entrepreneurship and Innovation Policy and the Economy, volume 4

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  • Martin Beraja
  • Wenwei Peng
  • David Y. Yang
  • Noam Yuchtman

Abstract

Venture capital plays an important role in funding and shaping innovation outcomes, characterized by investors’ deep knowledge of the technology, industry, and institutions, as well as their long-running relationships with the entrepreneurship and innovation community. China, in its pursuit of global leadership in AI innovation and technology, has set up government venture capital funds so that both national and local governments act as venture capitalists. These government-led venture capital funds combine features of private venture capital with traditional government innovation policies. In this paper, we collect comprehensive data on China’s government and private venture capital funds. We draw three important contrasts between government and private VC funds: (i) government funds are spatially more dispersed than private funds; (ii) government funds invest in firms with weaker ex-ante performance signals but these firms exhibit growth rates exceeding those of firms in which private funds invest; and (iii) private VC funds follow government VC investments, especially when hometown government funds directly invest on firms with weaker ex-ante performance signals. We interpret these patterns in light of VC funds’ traditional role overcoming information frictions and China’s unique institutional environment, which includes important frictions on mobility and information.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Martin Beraja & Wenwei Peng & David Y. Yang & Noam Yuchtman, 2024. "Government as Venture Capitalists in AI," NBER Chapters, in: Entrepreneurship and Innovation Policy and the Economy, volume 4, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:15003
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    References listed on IDEAS

    as
    1. Sampsa Samila & Olav Sorenson, 2011. "Venture Capital, Entrepreneurship, and Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 338-349, February.
    2. Shai Bernstein & Xavier Giroud & Richard R. Townsend, 2016. "The Impact of Venture Capital Monitoring," Journal of Finance, American Finance Association, vol. 71(4), pages 1591-1622, August.
    3. Manju Puri & Rebecca Zarutskie, 2012. "On the Life Cycle Dynamics of Venture-Capital- and Non-Venture-Capital-Financed Firms," Journal of Finance, American Finance Association, vol. 67(6), pages 2247-2293, December.
    4. Sabrina T. Howell, 2017. "Financing Innovation: Evidence from R&D Grants," American Economic Review, American Economic Association, vol. 107(4), pages 1136-1164, April.
    5. Gary Clyde Hufbauer & Euijin Jung, . "Scoring 50 years of US industrial policy, 1970-2020," PIIE Briefings, Peterson Institute for International Economics, number PIIEB21-5, August.
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    More about this item

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • H19 - Public Economics - - Structure and Scope of Government - - - Other
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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