A prize-winning research paper has concluded that, in China, venture capital funds that have partial backing from the government outperform wholly-owned government funds or those that have no government backing. The paper entitled ‘The impact of government ownership on venture performance: evidence from China‘ was presented at the Coller Institute of Venture conference in Hong Kong on November 7th by one of its authors, Mark Humphrey-Jenner (pictured), Assistant Professor of Finance at the University of New South Wales Business School. The paper was the winner of the Coller Institute’s 2015 prize for research into venture capital.
Professor Humphrey-Jenner said “Funds partially-backed by the Chinese government provide improved exit likelihood for their portfolio companies and reduced sensitivity to political uncertainty. They can facilitate IPO exits, particularly on the mainland. For investors, it could be beneficial to co-invest in a syndicate with a partially-backed government fund or to invest in such a fund as a limited partner (LP). The exception seems to be funds that are partially-backed by a government from the same region because the government may unduly and unhelpfully influence which local companies are invested in.” The paper also found that wholly-owned government funds perform poorly.
This research appears to confirm findings of other research highlighted in a recent article in Global Corporate Venturing: What is the performance of government-sponsored VCs, written by academics Martin Haemmig and Boris Battistini.