The European Investment Fund (EIF), the largest fund of venture capital (VC) funds on the continent, has undermined the industry’s argument that tax incentives are important factors for venture capital funds to invest in a country.
Trade bodies in the US and UK, among other regions, have argued that tax incentives are important as governments seek to raise capita gains tax or theamount paid on performance fees, called carried interest.
The reasons behind the relative lack of importance in tax incentives was put down to either VCs relying less on financial engineering to gain returns or having more state investors in their funds that are driven less by financial returns than other reasons.
Instead, the EIF study into 17 European countries between 2003 and 2008, Drivers of Private Equity Investment Activity: are Buyout and Venture Investors Really So Different?, found the rate of innovation was key to VCs.
The study also found venture capital was "significantly negatively related to venture investment activity", which means money went to entrepreneurs building a business because the opportunity was there rather than out of necessity because there was no other work.