KEY FACTORS OF VENTURE CAPITAL INVEST-
MENTS IN EUROPE
Jy äskylä Uni e si y
School o Business and Economics
Mas e ’s Thesis
2024
Au ho : Eeli Leppälä
Subjec : Banking and In e na ional Finance
Supe iso : Ka i Heimonen
3
ABSTRACT
Au ho
Eeli Leppälä
Ti le
Key ac o s o en u e capi al in es men s in Eu ope
Subjec
Banking and In e na ional Finance
Type o wo k
Mas e ’s hesis
Da e
30.10.2024
Numbe o pages
59
Abs ac
The pu pose o his mas e ’s hesis is o iden i y key ac o s ha in luence en-
u e capi al in es men s in Eu ope. Eu opean en u e capi al in es men s ha e
inc eased signi ican ly especially be ween he yea s 2016-2021. Howe e , cu en
li e a u e has mainly ocused on he u n o he 2000s and hence does no con-
side he pe iod o apid g ow h.
This s udy examines key mac oeconomic ac o s quan i a i ely by implemen ing
panel OLS eg ession analysis. The panel da a consis o 24 di e en Eu opean
coun ies which obse a ion poin s ha e been collec ed be ween 2012 and 2022.
As a esul o his s udy, i was ound ha shadow in e es a e has signi ican
and s ong posi i e impac on en u e capi al in es men s especially when ob-
se ing seed -and s a -phase in es men s. Mo eo e , i is ound ha bo h high-
ech expo s and pa en s by o igin coun y has small bu s a is ically signi ican
posi i e co ela ion on en u e capi al in es men s. The las signi ican obus
obse a ion is he signi ican posi i e e ec be ween g adua es in science and
enginee ing and en u e capi al in es men s, especially when obse ing s a
and la e -phase en u e capi al in es men s.
Keywo ds
Ven u e capi al, shadow in e es a e, Eu ope, panel eg ession
Place o s o age
Jy äskylä Uni e si y Lib a y
4
TIIVISTELMÄ
Tekijä
Eeli Leppälä
Työn nimi
Tä keimmä ekijä en u e capi al sijoi uksissa Eu oopassa
Oppiaine
Banking and In e na ional Finance
Työn laji
P o G adu- u kielma
Päi ämää ä
30.10.2024
Si umää ä
59
Tii is elmä
Tämän P o G adu - u kielman a koi uksena on unnis aa ä kei ä muu ujia,
jo ka aiku a a Eu oopan iskipääomasijoi uksiin ( en u e capi al). Ven u e
capi al sijoi ukse o a Eu oopassa kas anee uosina 2016-2021 me ki ä äs i,
mu a nykyinen ki jallisuus on keski yny pääsään öises i 2000 lu un aih ee-
seen eikä näin ollen huomioi kas un aikakau a.
Tämä u kimus a kas elee mak o aloudellis en muu ujien aiku uksia k an i-
a ii ises i hyödyn äen paneeli OLS eg essiomene elmää. Paneeliaineis o
koos u 24 e i Eu oopan maas a, jois a ha ain opis ee on ke ä y uosina 2012–
2022. Tu kimuksen loppu uloksena ha ai iin a joko olla ole an oimakas po-
si ii inen ko elaa io en u e capi al sijoi us en kanssa, e enkin a kas ellessa
sijoi uksia siemen- ja alku aiheessa. Tämän löydöksen lisäksi ha ai iin, e ä
sekä maan ko kean eknologian iennillä ja pa en eilla on pieni, mu a ilas ol-
lises i me ki ä ä posi ii inen yh eys iskipääomasijoi uksiin. Tämän u kimuk-
sen iimeinen me ki ä ä pysy ä löydös on, e ä ie een ja ekniikan aloil a al-
mis uneiden ja en u e capi al sijoi us en älillä on me ki ä ä posi ii inen ai-
ku us e enkin, kun a kas ellaan ajanjaksoa alku -ja loppu aiheen sijoi uksia.
Asiasana
Ven u e capi al, a joko ko, Eu ooppa, paneeli eg essio
Säily yspaikka
Jy äskylän Yliopis on Ki jas o
5
CONTENTS
1 INTRODUCTION ................................................................................................ 7
1.1 Mo i a ion and backg ound ..................................................................... 7
1.2 Resea ch ques ions ..................................................................................... 8
1.3 Resea ch me hods ....................................................................................... 8
1.4 S uc u e o he hesis ................................................................................. 9
2 CHARACTERIZING VENTURE CAPITAL INVESTMENTS ..................... 10
2.1 En ep eneu and en u e capi al .......................................................... 11
2.2 Fund manage and en u e capi al ........................................................ 12
2.3 Ven u e capi al in es men p ocess ....................................................... 13
2.4 The en u e ma ke in Eu ope ................................................................ 15
2.5 Banking and en u es: ............................................................................. 17
2.6 O e iew o he Eu opean Ven u e capi al ma ke ............................. 18
3 FACTORS AFFECTING VENTURE CAPITAL ............................................. 23
3.1 Economic ac i i y ...................................................................................... 23
3.2 Capi al ma ke s ......................................................................................... 24
3.3 Legisla ion and in es o p o ec ion ....................................................... 25
3.4 En ep eneu ial cul u e ............................................................................ 26
4 DATA AND METHODOLOGY ....................................................................... 27
4.1 Da a ............................................................................................................. 27
4.2 Me hodology ............................................................................................. 33
4.2.1 Panel Reg ession ........................................................................... 34
4.2.2 Fixed e ec s and Random e ec s panel eg ession ................. 34
4.2.3 Hausman es ................................................................................. 36
4.2.4 Collinea i y ..................................................................................... 36
4.2.5 He e oskedas ici y ........................................................................ 37
4.3 Applica ions o his hesis ....................................................................... 37
5 RESULTS ............................................................................................................. 39
5.1 Subsample la ges coun ies by s ages (2012 – 2022) ........................... 42
5.2 Robus ness es s ........................................................................................ 44
5.3 Summa y o esul s ................................................................................... 47
5.4 Discussion wi h p e ious li e a u e ....................................................... 49
6 CONCLUSIONS, LIMITATIONS AND IMPLICATIONS ........................... 53
REFERENCES ............................................................................................................... 55
APPENDICES ............................................................................................................... 58

6
TABLES:
TABLE 1 VARIABLES FOR PANEL OLS MODEL (SOURCE: WIPO / GII) ..................................................... 28
TABLE 2 PANEL OLS RESULTS FROM ALL COUNTRIES .............................................................................. 40
TABLE 3 RESULTS OF LARGEST COUNTRIES SUBSAMPLE (2012 - 2022) ..................................................... 43
TABLE 4 RESULTS OF ROBUSTNESS TESTS ................................................................................................... 46
FIGURES:
FIGURE 1 BUSINESS FINANCIAL PHASES .................................................................................................... 14
FIGURE 2 MAP OF VENTURE CAPITAL INVESTMENTS IN EUROPE 2007 (OECD) ...................................... 18
FIGURE 3 MAP OF VENTURE CAPITAL INVESTMENTS IN EUROPE 2022 (OECD) ...................................... 19
FIGURE 4 VENTURE CAPITAL INVESTMENTS IN NOMINAL VALUES IN EUROPE 2007 (OECD) ................ 20
FIGURE 5 VENTURE CAPITAL INVESTMENTS IN NOMINAL VALUES IN EUROPE 2022 (OECD) ................ 20
FIGURE 6 VENTURE CAPITAL MARKET SIZE IN EUROPE (OECD) ............................................................. 21
FIGURE 7 VC -INVESTMENT DIVISION BY STAGES (TOTAL) ........................................................................ 22
FIGURE 8 VC -INVESTMENTS PER COUNTRY .............................................................................................. 29
FIGURE 9 DATA ON NORWAY .................................................................................................................... 31
FIGURE 10 DATA ON ESTONIA ................................................................................................................... 32
FIGURE 11 NORWAY VS. ESTONIA 2022 .................................................................................................... 33
FIGURE 12 VC -INVESTMENTS AND SHADOW INTEREST RATE .................................................................. 51
EQUATIONS:
EQUATION 1 PANEL OLS MODEL .............................................................................................................. 30
EQUATION 2 FIXED EFFETS…………………………………. .................................................................... 35
EQUATION 3 RANDOM EFFECTS… ............................................................................................................ 35
EQUATION 4 VIF ....................................................................................................................................... 37
APPENDICES:
APPENDIX 1 VIF ......................................................................................................................................... 58
APPENDIX 2: CORRELATION MATRIX ........................................................................................................ 58
APPENDIX 3 USE OF AI-BASED TOOLS ....................................................................................................... 59
7
1.1 Mo i a ion and backg ound
Ven u e capi al (VC) in es men s a e impo an in s emming inno a ion in Eu-
ope. This hesis s udies key mac oeconomic ac o s a ec ing en u e capi al in-
es men s om 2012 o 2022. Ven u e capi al ypically in ol es in es ing in
ea ly-s age companies. These i ms a e o en cha ac e ized by hei ocus on high
echnology o he in oduc ion o inno a i e ideas. F om an in es o 's pe spec-
i e, hese young companies gene ally lack he cash low o ope a e inde-
penden ly. Once p o i able, hey a ely pay di idends, op ing o ein es p o i s
in o g ow h. As a esul , e u ns on en u e capi al in es men s a e usually eal-
ized h ough exi s, such as ini ial public o e ings (IPOs) o acquisi ions by o he
p i a e equi y (PE) i ms. (Cumming, 2012). Also, en u e capi al in es men s a e
high- isk in es men s wi h signi ican isk ha hese companies ail o become
p o i able. I has been no ed, ha in es ing in en u e capi al unds does no c e-
a e any la ge p o i s han in es ing in s anda d and poo 500 (SP500) index
unds. Howe e , in mos cases VC -in es men s a e equi y-based which espe-
cially is bene icial o en ep eneu s, since in es o s and en ep eneu s sha e he
same incen i es. F om a und manage 's pe spec i e, VC -in es men s a e highly
p o i able since hey ecei e high commissions and unde w i ing ees. (
Cumming, 2012; Cumming e al., 2017; Le ne & Nanda, 2020)
The aim o his hesis is o ind key ac o s a ec ing en u e capi al
in es men s be ween he yea s 2012-2022 om 24 di e en Eu opean coun ies,
using panel OLS model. The esul s o his hesis indica e ha ma ke sophis ica-
ion does no signi ican ly impac en u e capi al in es men s. In con as , high-
ech expo s om he o igin coun y, along wi h g adua es in science and engi-
nee ing and in angible asse s, exhibi s a is ically signi ican posi i e e ec s on
en u e capi al in es men s. Addi ionally, he hesis ound ha seed- and s a -
1 INTRODUCTION
8
phase in es men s posi i ely co ela e wi h Wu-Xia shadow in e es a es, which
s ongly impac en u e capi al in es men s. Fu he mo e, i was obse ed ha
in 2021, und manage s apidly inc eased la e -s age in es men s in high- ech
businesses ha bene i ed om social dis ancing du ing he COVID-19 pan-
demic.
1.2 Resea ch ques ions
This hesis explo es which mac oeconomic ac o s di ec ly a ec en u e capi al
in es men s by analyzing co ela ions wi h eg ession analysis. The main e-
sea ch ques ion is:
Which ac o s make en u e capi al in es men s h i e in Eu ope?
The main esea ch ques ion can be e ined as:
1. Wha caused he apid inc ease in en u e capi al in es men s in Eu ope in
2021?
2. Wha mac oeconomic condi ions a e mos e ec i e o aising seed o ea ly-
phase VC - unding?
1.3 Resea ch me hods
The p ima y aim o his hesis is o analyze a ious mac oeconomic ac o s ha
could impac en u e capi al in es men s using Panel O dina y Leas Squa es
(Panel OLS) as an analy ical app oach. This s udy uses OECD da a as he depend-
en a iable, which also con ains di e en s ages o VC- in es men s. Independ-
en a iables include da a om he Wo ld In ellec ual P ope y O ganiza ion
(WIPO) which has conduc ed he Global Inno a i eness Index. By using his
comp ehensi e da ase and imp o ing wi h se e al o he mac oeconomic ac o s
such as GDP g ow h, unemploymen a e, and Wu-Xia shadow in e es a e,
which was ound om p e ious li e a u e. A panel da ase was conduc ed o ex-
amine indi idual and coun y-le el e ec s ac oss coun ies.
Fu he mo e, o ensu e he eliabili y o esul s obus ness es s we e pe -
o med o each eg ession. The obus ness es allowed o examine whe he any
o he a iables do no impac esul s.
9
1.4 S uc u e o he hesis
This s udy has been di ided in o 6 di e en chap e s. Chap e 2 aim is o c ea e
a comp ehensi e cha ac e iza ion o en u e capi al and how a ious en i ies
impac i . Chap e 3 mainly ocuses on p e ious s udies, which hey ha e ound
o be c i ical ac o s impac ing en u e capi al. Mo eo e , chap e 4 con ains he
da a and me hodology sec ion, and Chap e 5 includes esul s, obus ness es s,
and a discussion o p e ious s udies. Las ly, all he mos impo an esul s ha e
been ga he ed in Chap e 6.
16
s uc u ed ees. On he con a y, go e nmen al und manage s ypically ecei e
a mon hly based s eady sala y, which may a ec wo k mo ale and he e o y-
ing o g ow he company (Cumming e al., 2017)
The hi d issue ha Cumming e al. (2017) no iced is he lack o in-
dependence because go e nmen al und manage s also encoun e p essu e o
p og ess o he hings han inancial g ow h i.e., employmen maxima ion o ge-
og aphical-speci ic in es men s which bene i s policymake s’ in e es . Rega d-
less he issues ha go e nmen al und manage s encoun e , Cumming e al.
(2017) also s a ed ha he syndica ion be ween independen en u e capi al
unds and go e nmen al-backed en u e capi al unds also gene a es syne gies.
The eason is ha go e nmen al en u e capi alis s can bene i he s uc u al ad-
an ages o independen en u e capi al in es o s e.g. inancial agen issues and
he ac ha hey ha e g ea e incen i e o g ow company inancially. Mo eo e ,
independen en u e capi alis s also enjoy syne gies ha go e nmen al en u e
capi al in es o s con ibu e. Fo ins ance, Gue ini & Quas (2016) s udied ha
go e nmen al in es o s ce i y companies ha a e alid in es men s. Also,
Cumming e al. (2017) men ioned ha go e nmen al VC in es o s could also
b ing cus ome s om he public sec o .
E en hough go e nmen al en u e capi al in es men s ha e posi-
i e and nega i e impac s, Le ne (2002) added some c i icism o he discussion.
His esea ch showed ha when go e nmen assis ance was in oduced in o en-
u e capi al in es men s wi h he goal o boos ing inno a ion, i ac ually in ensi-
ied an al eady o e hea ed en u e capi al ma ke . Howe e , he s udy no ed
ha go e nmen al assis ance did inc ease VC -in es men s bu in es men s
should ocus mo e on indus ies whe e p i a e in es o s do no in es in. This
could balance he VC ma ke ins ead o “ h owing gas on a i e” (Le ne , 2002).
C oce e al. (2013) s udied p oduc i i y di e ences be ween en u e
capi al-backed i ms and non-VC-backed i ms. As men ioned abo e, hey s ud-
ied 696 companies o which 267 i ms we e VC-backed hey did no no ice di e -
ence be ween VC-backed and non-VC-backed i ms. These esul s we e no in
line wi h p e ious s udies om he US. They poin ed ou wo signi ican easons
o he di e gence. Fi s , he US VC ma ke is mo e de eloped han in Eu ope,
and second, hey ound ou ha he epu a ion o a i m makes a di e ence in he
p oduc i i y o en ep eneu ial i ms.
E en hough Eu ope has gene a ed mul iple unico ns in he pas
yea s, C oche e al. (2013) c i icized he business en i onmen in Eu ope. They
poin ed ou ha he clima e in Eu ope makes i di icul o VC -in es o s o de-
elop and make exi s. To make his s a emen hey e e ed o Colombo e al.
(2011) book which cap u ed ongoing e o ms in Eu ope making i mo e a ac-
i e. Colombo e al. (2013) c ea ed he so-called e o m index, which calcula ed
simple s eps ha di e en Eu opean coun ies mus ake owa d he Eu opean
Commission goal in 2020, which con ained public policies o de elop an econ-
omy based on knowledge and inno a ion. The main idea o his p og am is o
emo e he cos o ma ke and o he ypes o ic ion ha egula ion needs. Ac-
co ding o C oche e al. (2013) s udy men ioned ha Eu ope has aken a

17
signi ican s ep in inc easing en ep eneu ship bu he e is s ill a lo o unde de-
elopmen in inancial ma ke s compa ed o he U.S.(Colombo e al., 2011)
One c ucial ac o o en u e capi al is pa en s because i c ea es se-
cu i y o en u e capi al in es o s. Ueda (2004) a gued ha he U.S. is much
mo e a ac i e o en u e capi alis s han Eu ope because he U.S. has commi -
ed o p o ec ing in ellec ual p ope y igh s, e.g., pa en s o so wa e and busi-
ness model pa en s.
Fu he mo e, i he U.S. o e s be e ci cums ances o s a ups, he
ques ion a ises ha why Eu opean s a ups do no mig a e o he U.S. Weik,
(2023) s udied o e 11 066 di e en Eu opean s a up businesses du ing he ob-
se a ion pe iod 2000-2014 when ecei ed he i s VC -in es men . This s udy
examined he exi s o 555 companies om 2015 o 2021. Acco ding o he su ey,
hey no iced ha hese companies ypically mig a ed 1.6 yea s la e when busi-
nesses ecei ed he i s VC in es men . Fu he mo e, he saw ha ypically in he
US, s a ups ecei e mo e unding han in Eu ope. Fo example, 12 million und-
ing ound in Eu ope is doubled in he US. This led o inc easing pe o mance in
hese companies. I was no ed ha companies eloca ing om Eu ope o he U.S.
enhanced suppo om he en ep eneu ial en i onmen , such as mo e i al p o-
ec ion h ough mo e accessible pa en ing oppo uni ies. Howe e , he s udy in-
dica ed ha mig a ing business o he U.S. does no imp o e he likelihood o
exi o success.
2.5 Banking and en u es:
E en hough en ep eneu s cu en ly ha e a lo o di e en op ions o ge inance
e.g., ia c owd unding, business angels, PE i ms, and VC in es o s, banking is
s ill an essen ial sou ce o s a -up unding. Ueda (2004) s udied why some en-
ep eneu s p e e en u e capi al as he p ima y sou ce o inancing, and some
p e e adi ional banking. I a en u e i m has limi ed colla e al, along wi h
high g ow h, high e u ns, and high isk, he le el o in o ma ion asymme y in-
c eases, leading o highe cos s o bank loans. Hence, en ep eneu s p e e en-
u e capi al a he han s anda d bank loans. Howe e , in mos cases, he due
diligence p ocess ha VC in es o s p e e be o e making an in es ing decision
can be long and us a ing. En ep eneu s ha e o hand o e all he business
models e c. which a e kep as con iden ial in o ma ion. (Ueda, 2004)
In mos cases, s a ups a e iskie han adi ional companies, be-
cause o hei lack o ack eco d and colla e als equi ed by banks. This inhe en
isk is signi ican , especially in he inancial sec o , whe e s abili y and us a e
he key ac o s. The isks became e iden in 2022 when Silicon Valley bank su -
p ised in es o s by in o ming conside able losses in hei balance shee . Silicon
Valley Bank was kep as one o he mos long-s anding and bes banks in he US.
The Silicon Valley Bank had an excellen epu a ion o ha ing good ela ion-
ships wi h en u e capi alis s and o he p i a e equi y in es o s (Vo & Le, 2023).
18
As sugges ed by Vo & Le (2023), banking ailu e is mos likely a con-
sequence o mul iple ac o s. They poin ed ou ha easons o bank ailu es
could be poo isk managemen , which could inc ease he odds o ealized
losses, undi e si ied o small numbe o deposi o s, which inc eases bank un
likelihood, and apid in e es a e changes. They also no ed ha ypically be o e
bank ailu e he e is inc easing ac i i y in o he ope a ions o o he han s anda d
bank ac i i ies.
Since he Silicon Valley bank had loaned du ing a low-in e es a e
pe iod hey s a ed o s uggle. When in es o s no iced he occu ence o possible
bank losses, hey began o wi hd aw hei money om he bank which also in-
c eased he isk o banking ailu e. As Vo & Le (2023) poin ed ou o Silicon Val-
ley banks his was ca as ophic because hey had a small numbe o deposi o s
and hose deposi o s we e he ones who ook ou he money.
2.6 O e iew o he Eu opean Ven u e capi al ma ke
Figu e 2 Map o en u e capi al in es men s in Eu ope 2007 (OECD). The pe cen age is
en u e capi al in es men s di ided by GDP.
19
Figu e 3 Map o en u e capi al in es men s in Eu ope 2022 (OECD). The pe cen age
indica es en u e capi al in es men s di ided by GDP.
Figu e 2 and Figu e 3 p esen a compa a i e analysis o en u e capi al in es -
men s ac oss a ious coun ies, depic ed wi h hei G oss Domes ic P oduc
(GDP), wi h he esul s exp essed as pe cen ages. The Figu e 3 e eals a concen-
a ion o VC in es men s p ima ily in Wes e n Eu ope and o he No dic coun-
ies. Addi ionally, i 's no ewo hy ha among he o me So ie s a es, only he
Bal ic s a es ha e success ully a ac ed en u e capi al signi ican ly.
Figu es 2 and 3 illus a e he p og ession o en u e capi al in es -
men s om a coun y-speci ic pe spec i e. The o e all end is clea : VC in es -
men s ha e isen in almos e e y coun y, excep o No way and Po ugal,
which in e es ingly, ha e seen a e e se end despi e being in egions ha ypi-
cally ha e a ac ed en u e capi al in es o s. A no able obse a ion is he signi -
ican inc ease in VC in es men s in Es onia, possibly linked o he coun y's high
numbe o unico ns pe capi a, including p ominen examples like Bol , Skype,
and Ve i (Kü , 2022) On a e age, he VC in es men a e o hese coun ies
was 0.0371% wi h a mean o 0.0287% in 2007, which ose o 0.0885% wi h a mean
o 5% in 2022. Howe e , i 's impo an o men ion ha he lack o da a poin s o
he newe EU coun ies may ha e led o a lowe mean alue. Figu es 2 and Figu e
3 collec i ely sugges ha en u e capi al in es men is on an upwa d end.
20
Figu e 4 Ven u e capi al in es men s in nominal alues in Eu ope 2007 (OECD). Da a
a e p esen ed in millions.
Figu e 5 Ven u e capi al in es men s in nominal alues in Eu ope 2022 (OECD). Da a
a e p esen ed in millions.
F om Figu e 4 and Figu e 5, no ably, he mos signi ican amoun s o money low
o Wes e n Eu ope and he No dic coun ies. I is no ewo hy ha om a VC
in es men pe spec i e, No way lags o he No dic coun ies. Con a y o he
p e ious Figu e 2, we no e ha e en hough Es onia was he leading coun y in
21
VC in es men s o GDP, he nominal amoun o in es ed money is ela i ely
small. Howe e , his is unde s andable gi en he small popula ion in Es onia.
Wha s ands ou is he signi ican inc ease in o med so ie coun ies like Es onia,
Check Republic, and Slo ak Republic.
F om a de elopmen pe spec i e, no ably, only wo coun ies No -
way and Romania had an ad e se change in en u e capi al in es men s when
compa ing he yea s 2007 and 2022. The de elopmen in he pas 15 yea s has
been signi ican om o e all de elopmen . The median de elopmen has been
190% be ween he yea s 2007 and 2022.
Figu e 6 Ven u e capi al ma ke size in Eu ope (OECD). Da a a e p esen ed in mil-
lions.
Figu e 6 illus a es he signi ican g ow h o he en u e capi al VC -ma ke o e
he pas 15 yea s, wi h one o he mos no able inc eases occu ing be ween 2016
and 2017, and con inued g ow h h ough 2021. One ac o con ibu ing o his
su ge was he Eu opean Cen al Bank (ECB) lowe ing i s in e es a es below
ze o, which, in heo y, could ha e d i en mo e unds owa d highe - isk in es -
men s as in es o s sough g ea e e u ns. Ano he possible explana ion o his
ise is he mone a y easing p og ams ini ia ed by he Eu opean Council in 2016
as pa o hei in e es a e educ ion e o s. The sha p inc ease be ween 2020
and 2021 could be a ibu ed o he mone a y easing p og ams implemen ed du -
ing he COVID-19 pandemic.
Acco ding o he ECB, hey began hei Asse Pu chase P og ams
(APP) in 2015, wi h he la es ne pu chases eco ded in June 2022. No ably, du -
ing pe iods o signi ican g ow h, he ECB amped up i s ne pu chases. F om
Ap il 2016 o Ma ch 2017, he e was a eco d-high ne pu chase o 80 billion eu-
os. In 2020, he ECB in oduced a empo a y 120 billion eu o ne pu chase
0
5000
10000
15000
20000
25000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Ven u e capi al ma ke in Eu ope million USD

22
p og am, in addi ion o he egula 20 billion eu os o ne pu chases (Eu opean
Cen al Bank, 2023).
Simila ly, he U.S. go e nmen es ablished mul iple economic aid
packages du ing he COVID-19 c isis. In Ma ch 2020 hey added a 2,2 illion
USD elie package, he CARES Ac , o he ma ke o slow down weakening ma -
ke condi ions, which he pandemic c ea ed. Consequen ly, hey added ano he
elie package o 1,9 illion USD, he Ame ican Rescue Plan Ac , o he same
eason (Vo & Le, 2023).
Pe iods o weakness in he en u e capi al ma ke a e only obse ed
du ing economic shocks. As shown in Figu e 6, declines occu exclusi ely du ing
hese pe iods. The i s was du ing he inancial c isis o 2007–2008, he second
du ing he eu o c isis in 2011–2012, and he mos ecen in 2022 amid geopoli ical
ensions. Despi e ising in la ion du ing he inc easing geopoli ical ensions, he
Eu opean Cen al Bank (ECB) con inued i s ne asse pu chases in o 2022 bu
ceased hem by he end o June o ha yea (Eu opean Cen al Bank, 2023).
Figu e 7 VC -in es men di ision by s ages ( o al)
Figu e 7 VC -in es men di ision by s ages illus a es he di ision o en u e cap-
i al VC-in es men s by s ages, and clea ly shows how in es men s a e dis ib-
u ed ac oss di e en unding s ages. This da a, sou ced om he OECD, (2019),
demons a es he ypical pa e n whe e in es men s end o be mo e p ominen
in la e s ages. Howe e , Eu opean en u e capi al in es men s appea o be p i-
ma ily concen a ed in seed and s a -phase companies. F om his, i can be con-
cluded ha he numbe o s a up in es men s is likely highe in s a -phase com-
panies compa ed o la e -phase companies.
23
This chap e is di ided in o ou di e en sec ions. The sec ion 3.1 ocuses on
Economic ac i i y, which mainly co e s s udies examining he impac o mac o-
economic ac o s on en u e capi al. Sec ion 3.2 ocuses on capi al ma ke s, Sec-
ion 3.3 on legisla ion and in es o p o ec ion, and he ou h Sec ion 3.4 on en-
ep eneu ial cul u e. This s uc u e has been used by C oce e al. (2013) who
s udied he a ac i eness o a ious Eu opean coun ies.
3.1 Economic ac i i y
Logically, a mo e ib an economy should a ac mo e en u e capi al in es -
men s, and his conclusion is suppo ed by many s udies. Gompe s e al. (1998)
examined a ious en u e capi al i ms be ween 1972 and 1994, aiming o iden-
i y ac o s in luencing en u e capi al in es men s. The s udy ound ha ce ain
elemen s, such as esea ch and de elopmen (R&D) inc ease en u e capi al in-
es men s. In e es ingly, he esea ch also e ealed ha gene al economic g ow h
posi i ely a ec s en u e capi al in es men s. The au ho s p oposed ha his co -
ela ion is likely because economic g ow h s imula es a b oade demand o i-
nance.
A couple o yea s la e Gompe s & Le ne (2000) s udied alua ions
in he p i a e equi y ma ke . The s udy concluded ha alua ions ise du ing
“ho ” pe iods, e e ed o as imes when o e all economic condi ions a e good.
This ise is p ima ily d i en by demand, which pushes p i a e equi y in es men
p ices highe . This indica es ha he g ow h o GDP inc eases he p ices o un-
de lying companies which inc eases he p o i s o he en u e capi al und bu
simul aneously he amoun o money inc eases du ing he unding pe iod. Mo e-
o e , Le ne (2002) a gued ha he impac o en u e capi al in es men s on in-
no a ion diminishes du ing apid g ow h, indica ing ha when he en u e cap-
i al ma ke becomes o e hea ed, hese in es men s ha e a educed e ec on d i -
ing inno a ion.
3 FACTORS AFFECTING VENTURE CAPITAL
24
I is easonable o assume ha high ax a es could also be one po-
en ial ba ie o s a ups. Fo ins ance, i he s a up canno in es ully i s p o -
i s in o g ow h i could be one ac o ha slows en u e capi al in es men s. In-
ui i e hinking seems o be pa ly ue, because Gompe s e al. (1998) examined
ha educ ions in capi al gains ax inc ease en u e capi al in es men s. Also, a
mo e ecen s udy by Guzman (2018) ound ha pe sonal income ax does no
ha e any s a is ical signi icance on he pe o mance o s a ups.
Jeng & Wells (2000) s udied en u e capi al in es men s in 21 coun-
ies. The au ho s c ea ed a panel OLS model o s udy how in es o p o ec ion,
IPOs, labo ma ke , and GDP g ow h ha e a ec ed en u e capi al ma ke s. Re-
sea che s no iced ha he ule o law and GDP g ow h did no a ec en u e
capi al ma ke s. Howe e , hey highligh ed ha en u e capi alis s ypically in-
es du ing economic booms, as he demand o en u e capi al unds ends o
ise in such pe iods.
Se e al s udies (Félix e al. 2013; Gompe s e al. 1998) ha e ound a
posi i e co ela ion be ween long- e m in e es a es and en u e capi al in es -
men s. Bo h s udies no ed ha his is p ima ily d i en by he demand side, whe e
weal hy p i a e in es o s and ins i u ions end o alloca e mo e capi al owa d
iskie in es men s when he o e all economy is pe o ming well and g owing.
Félix e al. (2013) in es iga ed he ac o s d i ing en u e capi al in-
es men s ac oss 23 Eu opean coun ies be ween 1998 and 2003. Thei s udy was
he i s o examine he impac o unemploymen on en u e capi al in es men s
and ound ha unemploymen has a signi ican nega i e e ec on all phases o
en u e capi al in es men s, om ea ly o la e s ages.
3.2 Capi al ma ke s
Based on p e ious li e a u e, he dep h o capi al ma ke s appea s o be a deba ed
opic wi h en u e capi al. C oce e al. (2013) examined which Eu opean coun-
ies c ea e he mos a ac i e en i onmen s o en u e capi al in es o s. Thei
s udy concluded ha he Uni ed Kingdom p o ided he bes en i onmen , p i-
ma ily due o he dep h o i s capi al ma ke s and s ong in es o p o ec ion. Sim-
ila ly, Sche le (2003) conduc ed a panel OLS model s udy co e ing 14 Eu opean
coun ies om 1988 o 2000 and inding ha s ock ma ke capi aliza ion was a
key ac o d i ing en u e capi al in es men s. Mo eo e Gompe s e al. (1998)
came o a simila conclusion ha he dep h o capi al ma ke s has a posi i e e ec
on a ac ing en u e capi al in es men s.
Howe e Jeng & Wells (2000) no ed ha ma ke capi aliza ion does
no ha e a signi ican impac on en u e capi al in es men s. They did, howe e ,
come o he same conclusion as Gompe s e al. (1998) and Sche le (2003) iden i-
ying ha he numbe o IPOs has he mos signi ican impac on en u e capi al
in es men s. By dis inguishing he di e en s ages o en u e capi al in es -
men s, hey concluded ha he posi i e signi icance anished when obse ing
ea ly-s age en u e capi al in es men s and IPOs.
25
In e es ingly, since he yea 2000, Ini ial Public O e ings (IPOs) ha e
p o en o be a signi ican ac o in he en u e capi al ma ke s. A no able end
has been he lis ing o Eu opean s a -ups on U.S. s ock exchanges. This is p i-
ma ily a ibu ed o he highe alua ions, awa ded by he U.S. ma ke . Pisoni &
One i (2018) u ilized C unchbase, one o he la ges s a -up unding pla o ms,
o ga he da a on me ge s and acquisi ions (M&A) and explo e exi s a egies
employed by s a -ups in he U.S. and Eu ope. Thei esea ch, co e ing he pe-
iod om 2012 o 2016, e ealed ha U.S. companies acqui ed 44% o Eu opean
s a -ups. Mo eo e , hey highligh ed a g owing end in he la e yea s o he
obse a ion pe iod, wi h U.S. companies inc easingly acqui ing Eu opean s a -
ups. Howe e , as Gompe s & Le ne (2000) poin ed ou , in egions whe e he
en u e capi al scene is pa icula ly ac i e, he demand side d i es en u e capi-
al in es men p ices highe . This may be one o he easons why Eu opean
s a ups a e inc easingly looking o eloca e o he U.S. o be e oppo uni ies.
3.3 Legisla ion and in es o p o ec ion
As men ioned in Chap e 2 one o he c i ical ac o s en u e capi alis s seek is
pa en s which assumably gene a e sa e y o in es o s. One o he mos signi i-
can issues ha Eu ope lacks is ha in angible asse s a e almos impossible o
pa en . Compa ed o he U.S Eu ope canno pa en in angible asse s (Ueda, 2004).
Naha a e al. (2014) s udied o e 10000 companies ac oss 30 coun-
ies and examined how cul u al di e ences a ec o he success o en u e cap-
i al in es men s. They ound wo key ac o s in hei s udy. Fi s , coun ies ha
ank highe in legal indices, accoun ing o in es o p o ec ion and he ule o
law, expe ience a posi i e impac on VC -in es men success. Second, hey ound
ha when VC -in es o s a e un amilia wi h he local business cul u e and legal
sys em, i in oduces an addi ional isk ac o due o in o ma ion asymme y. As
a esul , cul u al di e ences can also mani es in us issues and challenges e-
la ed o con ac ing. Howe e , hey also concluded ha mo e signi ican cul u al
di e ences lead o be e company pe o mance. Naha a e al. (2014) explained
his by no ing ha VC -in es o s a e cau ious and spend mo e ime sc eening
du ing he in es men -making p ocess when cul u al di e ences a e signi ican .
Fascina ingly, when compa ing di e en con inen s, he aspec o le-
gali y yields a ied ou comes. Cumming e al. (2006) sugges ha in he con ex
o homogeneous coun ies, like hose in Eu ope, legali y o he ule o law is no
a signi ican ac o . Howe e , in he case o he e ogeneous coun ies, such as
hose a ound he Paci ic Ocean, he p esence o a solid legal sys em signi ican ly
enhances he likelihood o success ul business exi s.
Jia e al. (2021) conduc ed a s udy on he impac o GDPR on Eu o-
pean en e p ises, employing a di e ences-in-di e ences me hodology ac oss
a ious age g oups, indus ies, and business models (B2B, B2C). Thei indings
e ealed an immedia e dec ease in en u e capi al ac i i y ollowing he ule o
he law, pa icula ly a ec ing da a-cen ic and consume - ocused en u es.
32
deals ha e inc eased. These changes sugges ha No way has iden i ied al e na-
i e sou ces o inancing.
Figu e 10 GII da a on Es onia
F om Figu e 10 i can be seen ha all s udy- ela ed me ics ha e declined excep
o a signi ican inc ease in g adua es in science and enginee ing. A he same
ime, Es onia has also seen a subs an ial ise in i s numbe o science and engi-
nee ing g adua es, enhancing i s po en ial o become a wo ld-class playe in he
echnology sec o . Addi ionally, high- ech expo s ha e inc eased in ecen yea s.

33
Figu e 11 GII da a No way s. Es onia 2022
The compa a i e spide web cha om 2022 (Figu e 11) clea ly illus a es he pe-
iod, indica ing no able ad ancemen s in echnological capabili ies in Es onia.
Mo eo e , i sugges s ha No way has p io i ized esea ch and de elopmen
(R&D) ini ia i es mo e han Es onia. Con e sely, Es onians exhibi a highe a -
e age en olmen a e in e ia y educa ion, pa icula ly in science and enginee -
ing.
4.2 Me hodology
A e conside a ion, he panel OLS (O dina y Leas Squa es) me hod was
selec ed. The choice o a o using panel OLS was ha panel OLS can accoun o
bo h ime se ies and c oss-sec ional da a. Howe e , pooled OLS does ha e he
same capabili ies as panel OLS, bu he main di e ence be ween hese me hods
is ha pooled OLS is mo e sui able o da a whe e he popula ion may a y
34
ac oss ime and when indi idual-speci ic e ec s can be igno ed (Hill e al., 2011,
p.540-543). Due o his eason, pooled OLS eg ession may no be ideal o his
hesis. In o he wo ds, he model would assume ha he e a e no coun y
di e ences, which does no make sense, and he igh -hand side a iables a e
always s anda d and do no change. Addi ionally, s udies wi h a simila
app oach, like his hesis, ha e used he panel OLS me hod wi h ei he a ixed
e ec s model o andom e ec s (Félix e al., 2013; Jeng & Wells, 2000). This hesis
aims o use he balanced panel OLS -me hod and ill in possibly missing alues
wi h each coun y's mean. In his essence, he en i e yea will no be los in he
panel OLS model. (Hill e al., 2011, p.567)
4.2.1 Panel Reg ession
Panel OLS model includes quan i a i e compa isons o de e mine coun ies’
ac o s and hei abili y o a ac en u e capi al in es men s. Mo eo e , o c ea e
a s a is ical amewo k ha akes accoun o bo h coun y and ime-speci ic
ac o s and possible unobse ed he e ogenei y, he panel OLS model is he mos
sui able. This s a is ical me hod is pa icula ly sui ed o da a ha spans se e al
ime pe iods ( ime-se ies) and includes mul iple en i ies (c oss-sec ional), such as
di e en coun ies, allowing o a mul i ace ed explo a ion o he ac o s
in luencing en u e capi al low. (Pedace, 2013, p.136-143) Typically, OLS
eg essions ha e some es ic ions o wo k app op ia ely, which we mus
conside . Acco ding o Be y (1993) he e a e a ew assump ions o conside :
The assump ion is ha he e o e m is no mally dis ibu ed.
The assump ions o homoscedas ici y and wi hou au oco ela ion
The assump ions o linea i y and addi i i y
The assump ions ha collinea i y does no exis s.
4.2.2 Fixed e ec s and Random e ec s panel eg ession
The ypical ques ion when using panel OLS eg ession is which me hod o use,
Fixed e ec s o andom e ec s panel eg ession. The p ima y di e ence be ween
hese me hods is how hey ea he e o e m. Fixed e ec s panel eg ession is
ypically used when he da ase has mo e ime obse a ions, indica ing ha he
ime-se ies da a a e longe han he c oss-sec ional da a. The ixed e ec model
assumes ha he eg ession cap u es e e y en i y's unique cha ac e is ic. The
ixed model assumes ha indi idual e ec s a e cons an bu no connec ed wi h
o he en i ies. Fixed e ec s eg ession ea s he e o e m in a way ha isola es
and cap u es he a iance speci ic o each en i y, like in his hesis, coun ies. The
o mula o he ixed model is ollowing:
35
𝑦𝑖𝑡 = 𝛽0+ 𝛽1𝑥1,𝑖𝑡 + 𝛽2𝑥2,𝑖𝑡 … + 𝛽𝑛,𝑖𝑡𝑥𝑛,𝑖𝑡 + 𝜖𝑖𝑡
𝑦𝑖𝑡 ,Dependen a iable in uni i a ime
𝛽0 , Coe icien s o he model which ep esen s e ec s by explana o y a iables
(in e cep )
𝛽1 , Coe icien s o he model which ep esen s e ec s by explana o y a iables
𝑥𝑛𝑡 , Explana o y a iables a speci ic ime
𝜖𝑖𝑡 , E o e m which includes he esidual a ime
(Hill e al., 2011, p. 543-549) (2)
The andom e ec s model is sligh ly di e en om he ixed e ec s model. The
mos signi ican di e ence is how hese models handle e o e ms. The andom
e ec s model assumes ha he a iance o andom es ima es is cons an among
he en i ies. The andom e ec s model can be deno ed as ollows:
𝑦𝑖𝑡 = 𝛽0+ 𝛽1𝑥1,𝑖𝑡 + 𝛽2𝑥2,𝑖𝑡 … + 𝛽𝑛,𝑖𝑡𝑥𝑛,𝑖𝑡 + ( 𝑢𝑖𝑡 + 𝜖𝑖𝑡)
𝑦𝑖𝑡 , Dependen a iable in uni i a ime
𝛽0 , ixed popula ion pa ame e a iables
𝛽1 , Coe icien s o he model which ep esen s e ec s by explana o y a iables
𝑥𝑛𝑡 , Explana o y a iables a speci ic ime
𝜖𝑖𝑡 , E o e m which includes he esidual a ime
𝑢𝑖𝑡 , andom e ec
(Hill e al., 2011, p.552) (3)
Obse ing he o mula o he andom e ec s model we can no ice ha (𝑢𝑖𝑡) as an
e o e m wi hin and ac oss clus e cap u es da a wi hin and ac oss he clus e .
This is pa ly i s ad an age and simul aneously i s weakness. The ad an age o
he andom e ec model is ha including coun y-speci ic e ec s enables he
model o accoun o unobse ed ac o s ha may be common o all obse a ions
wi hin a pa icula coun y. This capabili y enhances he model's accu acy by in-
co po a ing coun y-speci ic cha ac e is ics ha could in luence he dependen
a iable. Simul aneously i he e is no belie ha he coun ies ha e any hing in
common, ale s should a ise o a biased model. Howe e , in his case, when han-
dling homogeneous coun ies he di e ence could be minimal (Cumming e al.,
2006). (Ba els, 2009)
Also, one absolu e ad an age o he andom e ec s model is ha i
can e icien ly cap u e ime-in a ian da a due o he abili y o he(𝑎𝑖𝑡 ) e m
which sha es a iance ac oss he clus e .
36
4.2.3 Hausman es
Typically, he Hausman es is used o decide which o he models, ixed e ec s
o andom e ec s model is used. I he e is no economic easoning behind i , he
Hausman es should be employed. The c i ical poin o he Hausman o Du bin-
Wu-Hausman es is o decide whe he he e a e di e ences be ween andom
and ixed e ec models. The basic p inciple is ollowing, i he null hypo hesis is
ejec ed, he andom e ec s model is a ou ed, and ice e sa. I he Hausman
es has signi ican alue i desc ibes ha hose ixed e ec s ha e mo e in o -
ma ion han o andom e ec s. (Hill e al., 2011, p. 420-421)
Mo eo e , he eason why he Hausman es is ypically employed
when compa ing ixed e ec s and andom e ec s is i s simplici y. Howe e ,
(Ba els, 2009) added some c i icism o his app oach. Acco ding o he a icle,
unobse ed he e ogenei y includes he unmeasu ed dispa i ies in he dependen
a iable, bo h wi hin each clus e and ac oss di e en clus e s, and i he e oske-
das ici y is p esen Hausman es can lead o misleading in e p e a ions.
4.2.4 Collinea i y
Collinea i y is a condi ion whe e some a iables in a eg ession model a e highly
co ela ed wi h each o he and can weaken he pe o mance o he model, leading
o inaccu a e esul s. Acco ding o Mela & Kopalle (2002) he main issue is ha
collinea i y weakens pa ame e es ima ion powe by educing a iance. To ad-
d ess his conce n, i is sugges ed o obse e co ela ions ia co ela ion ma ixes.
Typically 0,8 by i s absolu e alue is kep as a ule o humb when obse ing high
co ela ions (Pedace, 2013, p.321).
Howe e , a whole sample co ela ion ma ix desc ibes he linea e-
la ionship be ween wo a iables. Howe e , one o he OLS eg ession assump-
ions was ha he e should no be mul icollinea i y be ween a iables. The aim
is o implemen a VIF (Va iance in la ion ac o ) panel o add ess his poin . VIF
measu es he linea ela ionship be ween independen a iables. VIF has a ela-
i ely simple mechanism o in e p e , VIF alue a le el 1 means ha no mul i-
collinea i y exis s, and 10 means ha he e is a po en ial issue wi h mul icolline-
a i y. When using VIF, i 's c ucial o conside how a iables should be managed
o po en ially elimina ed. Th oughou he in e p e a ion p ocess, i 's i al o ad-
jus changes wi h economic easoning. (Pedace, 2013, p.321-322)
𝑉𝐼𝐹𝑘= 1
1 − 𝑅2
37
(4)
4.2.5 He e oskedas ici y
One o he eg essions es ima e assump ions is ha da a a e no he e oskedas ic.
This means ha he e o e ms in he eg ession model ha e cons an a iance
ac oss all le els o he independen a iables. When he assump ion o homoske-
das ici y is iola ed, and he e o a iance a ies sys ema ically wi h he alues
o he independen a iables, i is e e ed o as he e oskedas ici y. In he essence
o o dina y leas squa es, his is c ucial because he eg ession line is calcula ed
by he squa ed dis ance om he e o e ms. Resul s o VIF -analysis can be
obse ed in Appendix 1 and simila ly esul s o he co ela ion ma ix can be
obse ed in Appendix 2.
Typically, he e oskedas ici y is handled o minimized wi h s a is i-
cal es s. The wo mos used es s a e he Whi es es and he B eusch-Pagan es .
Bo h es measu es and hei null hypo hesis is ha da a a e homoscedas ic. I he
null hypo hesis is ejec ed he da a a e below 5% signi icance le el. The main
di e ence be ween hese me hods is ha Whi e’s es allows e o e ms o ha e
nonlinea can be applied o he p edic ed model, hence using i o op imizing
pu poses. (Pedace, 2013, p.336-356)
4.3 Applica ions o his hesis
To iden i y he co ec a iables wi hou iola ing he assump ions o he eg es-
sion model, he i s s ep is o conduc a VIF (Va iance In la ion Fac o ) analysis
o add ess po en ial collinea i y issues among he a iables. The goal is o main-
ain a VIF below he 2.0 h eshold, whe e a alue o 1 indica es no mul icolline-
a i y and a alue o 10 sugges s high collinea i y (Pedace, 2013, p.324-328), The
second s ep is o implemen a co ela ion ma ix and keep alues below he 0,5
h eshold.
To ind he op imal model o each eg ession, he aim is o imple-
men he Hausman es o each eg ession model. Hausman es indica es he
possible di e ences be ween he andom and ixed e ec s model. I he p- alue
is i e pe cen o less, indica ing s a is ical signi icance, a andom e ec s model
will be used; o he wise, a ixed e ec s model will be applied. Howe e , gi en
ha he ocus o his hesis is p ima ily on coun ies, ixed e ec s should be ap-
plied exclusi ely o he coun y en i ies.
The model selec ion begins by unning bo h andom and ixed e -
ec s panel OLS eg essions o assess he signi icance o hese models using he
Hausman es .I 𝐻0 is ejec ed he ixed e ec s model will be used. In he case
whe e 𝐻0 is ejec ed by he Hausman es , he B eusch-Pagan es is conduc ed o
check o he e oscedas ici y. I he B eusch-Pagan es shows signi icance, a o-
bus co a iance es ima o , as sugges ed by he au ho o linea models Ke in

38
Sheppa d e al. (2024). The me hod co _ ype=” obus ” allows he linea models
p og am o adjus obus s anda d e o s using Whi e’s es ima o au oma ically.
39
To add ess esea ch ques ions, six di e en panel OLS models will be conduc ed,
o unde s and which a iables ha e a signi ican impac on en u e capi al in-
es men s in Eu ope. Fi s ly, he aim is o implemen ull sample panel OLS es i-
ma ion and hen c ea e wo subse s. These subse s ha e di e en obse a ion pe-
iods, allowing ac o s wi h ime- a ying e ec s o be examined. As no ed in Fig-
u e 6, 2016 was a u ning poin in Eu opean Union en u e capi al in es men s
o wo easons. A i s , his was he pe iod when nega i e in e es a es we e
obse ed, and a signi ican amoun o money lowed om he Eu opean Union
o s a ups. Based on hese de elopmen s, i can be assumed ha hese c i ical
e en s may ha e impac ed en u e capi al und aising ac oss Eu opean coun-
ies. Addi ionally, in 2016 Eu opean Union c ea ed a as change owa ds mo e
consume - iendly da a p o ec ion laws, launching new GDPR (Gene al Da a
P o ec ion Laws) laws (Eu opean Cen al Bank, 2023; Jia e al., 2021). By ex end-
ing he obse a ion pe iod o he subsample o 2018, ha model should also
iden i y e en s be o e COVID-19 and geopoli ical ensions. Fo hese easons, he
aim is o conduc wo subse s one o he yea s 2012-2018 and he second o 2016-
2022.
One o his hesis's c i ical poin s is o obse e he e ec s o di e en
phases. As men ioned in many p e ious s udies he e ec s migh change de-
pending on which s age he business is a (Félix e al., 2013; Gompe s e al., 1998).
Luckily, OECD da a cap u es also da a om seed, s a , la e , and o al. By com-
pa ing hese s ages, his pape can also cap u e simila changes. To ecei e elia-
ble esul s o his model he aim is o emo e coun ies ha ha e ecei ed less
han 150 million USD in en u e capi al in es men s in 2022. This educes po en-
ial ou lie issues while conduc ing he model.
A e conduc ing panel OLS eg ession analyses he nex s ep is o
pe o m a obus ness es o each signi ican a iable. These es s, a g oup o
a iables ha ha e shown a signi ican impac on en u e capi al in es men s is
analyzed. This allows us o c ea e conclusions con iden ly. The inal s ep o his
chap e is o c ea e a comp ehensi e summa y o all he indings.
5 RESULTS
40
In Appendix 1, i was obse ed ha all VIF alues a e below 2, indi-
ca ing no mul icollinea i y issues among a iables. Howe e , Appendix 2
showed ha he GDP g ow h index p esen ed mode a e alues. Fo ins ance, he
GDP g ow h index had a mode a ely high co ela ion wi h ma ke sophis ica ion
(0.35) and unemploymen (0.4). These alues, howe e , a e s ill below he 0.9
h eshold gene ally conside ed indica i e o high co ela ion. While VIF p o ides
a mo e ad anced me hod o analyzing po en ial mul icollinea i y issues, hese
mode a e co ela ions sugges ha mul icollinea i y may no be a signi ican con-
ce n. While VIF is a mo e sophis ica ed me hod o analyse possible mul icolline-
a i y issue. Fu he mo e, mul iple s udies (Félix e al., 2013; Gompe s e al., 1998;
Jeng & Wells, 2000) ha e used GDP g ow h in he li e a u e and hence is a c i ical
pa o his analysis.
Table 2 p esen s esul s om h ee di e en panel OLS eg essions,
each co e ing a dis inc obse a ion pe iod and including da a om all 24 coun-
ies. To de e mine whe he o use a ixed e ec s o andom e ec s model, he
Hausman es is applied.
Table 2 Panel OLS esul s om all coun ies
VARIABLE
2012-2022 (RE)
2016-2022 (FE)
2012-2018 (RE)
INTERCEPT
2.561*
(0.068)
1.622
(0.381)
2.33
(0.173)
GDP_GROWTH_IDX
0.01*
(0.10)
0.010
(0.215)
0.001
(0.910)
WU_XIA_SHADOW_INTEREST_RATE
0.003
(0.925)
-0.075
(0.119)
0.033
(0.33)
UNEMPLOYMENT
-0.032
(0.12)
-0.033
(0.442)
-0.009
(0.740)
MARKET_SOPHISTICATION
-0.013
(0.25)
-0.002
(0.885)
0.004
(0.79)
GRADUATES_IN_SCIENCE_
AND_ENGINEERING
0.025***
(0.00)
0.035***
(0.001)
0.004
(0.581)
PCT_PATENTS_BY_ORIGIN
0.018***
(0.002)
0.018***
(0.024)
0.009*
(0.069)
HIGH_TECH_EXPORTS
0.014***
(0.001)
0.018***
(0.002)
0.01***
(0.034)
INTANGIBLE_ASSETS
-0.008
(0.35)
-0.009
(0.335)
0.016*
(0.066)
R-SQUARED
0.35
0.34
0.11
NO. OBSERVATIONS
264
168
168
HAUSMAN P-VALUE
1.00
0.04
1.00
P-VALUE REGRESSION
0.00
0.00
0.00
No es: P- alues a e in pa en heses. * Indica es s a is ical signi icance a 10% le el
and *** a 5% le el. Resul s o his able con ains all he 24 coun ies. P- alues
a e in pa en heses.
41
Table 2 highligh s key ac o s in luencing Eu opean en u e capi al in es men s
ac oss di e en obse a ion pe iods. Fo he ull pe iod om 2012 o 2022, edu-
ca ion in science and enginee ing shows a signi ican posi i e e ec on en u e
capi al in es men s, as indica ed by i s low p- alue. This sugges s ha en u e
capi al in es o s a e a ac ed o high- ech s a ups ha ely on skilled p o es-
sionals and obus expo capabili ies. Speci ically, a one-poin inc ease in he
Global Inno a ion Index (GII) sco e o g adua es in science and enginee ing is
associa ed wi h a 2.5% inc ease in en u e capi al in es men s om 2012 o 2022,
and a 3.5% inc ease om 2016 o 2022. Howe e , o he pe iod 2012-2018, g ad-
ua es in science and enginee ing no longe show a s a is ically signi ican impac .
In es o p o ec ion also s ands ou as a c i ical ac o in en u e cap-
i al in es men . In his panel OLS model, bo h pa en s o igina ing wi hin a coun-
y and in angible asse s a e e alua ed. A one-poin inc ease in he GII sco e o
pa en s by o igin is associa ed wi h a 1.8% inc ease in VC in es men s in bo h he
ull-pe iod eg ession and he 2016-2022 pe iod. Simila ly, o 2012-2022, pa en s
show a posi i e impac on VC in es men s, con ibu ing a 0.9% inc ease. No a-
bly, he coe icien o in angible asse s is nega i e o bo h he 2012-2022 and
2016-2022 pe iods, hough his esul is no s a is ically signi ican . Howe e ,
du ing 2012-2018, in angible asse s display weak s a is ical signi icance a he 7%
le el wi h a 1.6% impac on en u e capi al in es men s.
Table 2 e eals ha , o e he 2012-2022 pe iod, he Wu-Xia shadow
in e es a e, unemploymen , and ma ke sophis ica ion do no signi ican ly im-
pac en u e capi al in es men s. In e es ingly, he coe icien o ma ke sophis-
ica ion is nega i e, sugges ing a 1.3% decline in VC in es men s wi h each one-
poin inc ease in GII da a. This may indica e ha VC in es o s a e mo e likely o
s ep in when domes ic inancial ma ke s ace challenges in suppo ing s a ups,
al hough his esul is no s a is ically signi ican . A e 2016, he Wu-Xia shadow
in e es a e shows a signi ican nega i e impac on en u e capi al in es men s,
sugges ing ha in es o s p e e o und s a ups when mone a y policy eases.
Speci ically, a one-pe cen inc ease in he shadow in e es a e co esponds o an
app oxima e 7.6% dec ease in VC in es men s. Howe e , his e ec lies ou side
he 5% and 10% signi icance le els, wi h a p- alue o 0.1199.
The GDP g ow h index shows a modes 1% impac on en u e capi-
al in es men s, implying ha VC in es men s ise in line wi h gene al economic
g ow h. This e ec , howe e , disappea s o e sho e ime ames. Fo he 2012-
2018 and 2016-2022 pe iods, GDP g ow h would only con ibu e a 0.1% inc ease
in VC in es men s, wi h hese esul s lacking s a is ical signi icance.
Ac oss all obse a ion pe iods, he e is no s a is ical e idence ha
unemploymen a es o ma ke sophis ica ion signi ican ly a ec VC in es -
men s. Howe e , unemploymen does show a small nega i e coe icien , hough
i is no s a is ically signi ican .
Consis en wi h he cha ac e is ics o en u e capi al, VC in es o s
end o a ou coun ies wi h s ong high- ech expo s. This subsample indica es
a s a is ically signi ican posi i e impac o high- ech expo s on VC in es men s,
al hough in ecen yea s his e ec has weakened, sugges ing an inc eased ocus
48
s age phases. Howe e , his e ec was no obse ed in o he samples, sugges ing
ha shadow in e es a es a e mo e bene icial o VC in es men s du ing s able
economic condi ions, p ima ily d i ing in es men s in he seed and s a phases.
La e in he pe iod, he Wu-Xia shadow in e es a e showed weak s a is ical sig-
ni icance bu had a s ong nega i e e ec on VC in es men s. These esul s sug-
ges a posi i e co ela ion be ween he Wu-Xia shadow in e es a e and VC in-
es men s du ing seed and s a phases, wi h he s onges co ela ion occu ing
in s eady economic en i onmen s. Gi en he size o he pa ame e , he Wu-Xia
shadow a e appea s o be a key ac o in luencing he di ec ion o VC in es -
men s.
The panel OLS analysis also ound a signi ican nega i e impac o
he unemploymen a e on en u e capi al in es men s in he s a phase. While
unemploymen showed a nega i e impac ac oss all eg essions, he esul s did
no each s a is ical signi icance excep o he s a phase, whe e a g ow h in un-
employmen was associa ed wi h an app oxima e 10% educ ion in VC in es -
men s, based on obus ness es s. This sugges s ha , al hough unemploymen
may no di ec ly in luence o e all VC in es men s, i does ha e an impac du ing
he s a phase, whe e economic challenges may de e in es men .
The s udy’s indings align wi h he ypical cha ac e is ics o en u e-
backed s a ups, e ealing a s a is ically signi ican posi i e impac o high- ech
expo s and g adua es in science and enginee ing on VC in es men s. These e-
sul s a e consis en wi h expec a ions, as s a ups o en equi e ad anced ech-
nical expe ise and scalabili y in o eign ma ke s. This unde sco es he im-
po ance o inno a ion-d i en indus ies in a ac ing en u e capi al. G adua es
in science and enginee ing ha e a mode a e impac on VC in es men s, while
high- ech expo s show a smalle bu posi i e e ec . Howe e , s a is ical signi i-
cance o hese ac o s was absen in he seed-phase and 2012-2018 subsample,
which is likely due o he educed demand o echnical expe ise in seed-s age
unding.
Ano he key inding is ha GDP g ow h did no ha e a signi ican
impac on VC in es men s, hough he e was a weak posi i e end in he ull
sample. This sugges s ha while GDP g ow h co ela es posi i ely wi h VC in-
es men s, i may no be a decisi e ac o in in es men decisions. Al hough GDP
g ow h had a posi i e coe icien in e e y eg ession, none o hese esul s we e
s a is ically signi ican .
Pa en s by o igin coun y appea o ha e a small bu posi i e in lu-
ence on en u e capi al in es men s, con ibu ing abou 1-2% o each eg ession,
depending on he model. Only he 2012-2018 and seed-phase samples did no
show signi ican impac s om pa en s, possibly due o sec o al p e e ences du -
ing ha pe iod, such as so wa e, which is less elian on pa en s. This is sup-
po ed by he signi icance o in angible asse s du ing ha ime, which had a 2-
3% e ec on VC in es men s. Addi ionally, delayed e ec s could be a ac o , as
he de elopmen and applica ion o pa en -wo hy inno a ions o en ake ime.
An unexpec ed esul is ha ma ke sophis ica ion did no show o-
bus signi icance in any model. While i ini ially appea ed o ha e a nega i e

49
impac on he ull sample, his esul was no consis en ac oss o he eg essions.
This may indica e ha , in he Eu opean con ex , en u e capi al in es o s no
longe p io i ize ma ke sophis ica ion when making in es men decisions. One
possible explana ion is ha changing a s a up’s coun y o o igin has become
easie , and so wa e- ela ed s a ups can scale in e na ionally wi h ela i e ease,
suppo ed by cloud in as uc u e scalabili y.
5.4 Discussion wi h p e ious li e a u e
Cumming (2012) cha ac e ized en u e capi al ha i in es s ea ly-s age compa-
nies which ypically acqui e s akes om companies ha a e ocused on high- ech
businesses o o he inno a i e business ideas. He also men ioned ha om a
en u e capi al in es o poin o iew, his always con ains mo e isk. High- ech
businesses need p o essionals which his hesis suppo s. In e e y panel eg es-
sion, i seems ha g adua es in science and enginee ing and high- ech expo s
a e s a is ically signi ican . This s udy con i ms Jeng & Wells (2000) s udy ha
s a ups need high- ech p o essionals. Howe e , i seems ha hei esea ch did
no ind ha high- ech p o essionals ha e a s a is ically signi ican impac on
businesses a ea ly s ages. This s udy ound ha high- ech expo s ha e a s a is-
ically signi ican posi i e e ec on en u e capi al in es men s ac oss a ious
samples. Addi ionally, g adua es in science and enginee ing we e shown o im-
pac en u e capi al in es men s in he ull sample, as well as in he s a and
la e -s age in es men s. On he o he hand, hese esul s a e no ully compa able
because in his hesis, g adua es we e used, while hey ocused on jobs in high-
ech business.
In es o p o ec ion seems o play a c ucial pa in en u e capi al in-
es men s. Acco ding o his s udy, pa en s seem essen ial o en u e capi al in-
es o s. Posi i e and s a is ically signi ican esul s we e ob ained om e e y
panel analysis excep om seed and la e -phase VC -in es men s. As Ueda
(2004) and Weik (2023) men ioned, Eu ope is no as a ac i e compa ed o he
US om a en u e capi alis poin o iew, because in es o s canno pa en hei
in angible asse s as well as in he US. Acco ding o his s udy, i seems ha pa-
en s do inc ease he likelihood o ecei e en u e capi al in es men s, bu his
e ec is app oxima ely 1-2%. This s udy gene ally ound no e idence ha in es-
o s p io i ize o he in angible asse s o p o ec ion, as hey we e no s a is ically
signi ican in mos analyses. Howe e , in angible asse s showed s a is ical signi -
icance in he 2012-2018 subsample, a pe iod du ing which he impac o pa en s
dec eased.
Mul iple a icles (G oh 2010; Sche le 2003) sugges ed ha he num-
be o IPOs signi ican ly impac en u e capi al in es men s. Mo eo e , ma ke
capi aliza ion seems o be a mo e a gued opic because Félix e al. (2013) and Jeng
& Wells (2000) bo h a gued ha ma ke capi aliza ion does no posi i ely impac
en u e capi al in es men s. On he con a y G oh (2010) sugges ed ha Uni ed
Kingdom a ac s en u e capi al in es men s mos due o he dep h o i s capi al
50
ma ke s. Howe e , i seems ha he esul s o his hesis a e mo e aligned wi h
Félix e al. (2013) which concluded ha en u e capi al ma ke can de elop e en
hough capi al ma ke s a e less de eloped. Acco ding o esul s o his pape
he e is no e idence ha ma ke sophis ica ion posi i ely impac s en u e capi al
in es men s. Mo eo e , acco ding o Weik (2023) nowadays mig a ing s a up is
qui e common and seems ha geog aphic loca ion has no impac and in his es-
sence he ac ual loca ion o business seems o ha e no di e ence.
I has been a gued in he li e a u e whe he GDP g ow h impac s
en u e capi al in es men s o no . Acco ding o Jeng & Wells (2000) s udy hey
a gued ha GDP g ow h does no impac en u e capi al. Howe e , Félix e al.
(2013) we e able o de ec ha GDP has posi i e impac on en u e capi al in es -
men s. They also no ed ha ypically when GDP is g owing, he numbe o busi-
nesses inc ease, which leads o inc ease in VC in es men s. Howe e , his s udy
came in o same conclusions like Jeng & Wells (2000) since only a mino s a is i-
cally signi ican impac was obse ed when analyzing he ull sample. I seems
ha he e can be iming di e ences which causes he di e ences be ween s udies.
Acco ding o Gompe s e al. (1998) he e ec s o en u e capi al in es men s and
GDP g ow h a e lagged. They no ed ha highe GDP g ow h inc eases spending
on esea ch and de elopmen , which e en ually become an oppo uni y o en-
u e capi al in es o s. In o he wo ds, he impac s o GDP g ow h a e no di ec
as s udied in his hesis.
This hesis obse ed ha shadow in e es a e has s a is ically signi -
ican posi i e impac on en u e capi al in es men s especially when con olling
he ecei ed en u e capi al in es men s and ime. In he bigges coun ies, seed
and -s a phase companies seem o ha e signi ican posi i e e ec s on en u e
capi al in es men s. Also, du ing s eady economic condi ions posi i e e ec
caused by shadow in e es can be no ed. These esul s seem o align wi h p e i-
ous s udies (Félix e al., 2013; Gompe s e al., 1998). Howe e , i is wo h men-
ioning ha bo h o hese s udies used eal in e es a es ins ead o shadow in e -
es a es like in his hesis. Gompe s e al. (1998) p oposed ha in e es a es
could nega i ely a ec en u e capi al in es men s, as lowe isk- ee a es make
en u e capi al unds mo e a ac i e o in es o s, he eby inc easing demand o
hese unds. Howe e , hei empi ical esul s indica ed he opposi e: in e es
a es had a posi i e impac on en u e capi al in es men s. Bo h s udies ex-
plained ha , unde no mal economic condi ions, ising in e es a es ypically
accompany economic g ow h. None heless, his inding appea s o con adic
hei ea lie li e a u e e iew. Addi ionally, al e na i e explana ions e e enced
he la e 1980s and ea ly 1990s, when he assump ion o a posi i e co ela ion be-
ween en u e capi al commi men s and in e es a es was ques ioned, as VC
commi men s declined du ing ha pe iod. The heo y ha en u e capi al in es -
men s inc ease du ing economic booms did no hold du ing he COVID-19 pan-
demic, when nea ly e e y asse class saw declines, and consump ion d opped
signi ican ly—excep o en u e capi al in es men s in Eu ope, which emained
s ong.
51
Acco ding o his hesis esul s, s a emen ha in e es a es posi-
i ely impac en u e capi al canno hold. The subsample om 2016-2022 indi-
ca es ha e nega i e impac o shadow in e es a es on en u e capi al in es -
men s a 12% le el. Hence, he al e na i e explana ion is ha when economy is
apidly booming he demand om VC - und in es o s inc ease. Sugges ed by
Le ne , (2002a) VC und manage s ins ead ein es hese unds o same compa-
nies in po olio han in es ing o new s a ups. Howe e , his does no explain
ully why en u e capi al in es men s inc eased du ing pos -co id-19.
Bellucci e al., (2023), obse ed ha VC in es o s apidly in es ed in
digi al se ices and high- ech s a ups due o inc eased demand du ing he pan-
demic. Rein es ing in hese companies was ad an ageous as i equi ed less e -
o compa ed o onboa ding new en u es. This end is e lec ed in he Figu e
12. I also makes sense om a VC - und manage 's poin o iew o ein es in
hese companies o wo easons. Fi s , he ma ke is g owing, and business has
he po en ial o g ow. Secondly, ein es ing is cos -e icien om und manage s'
pe spec i e because hey do no ha e o do he sc eening, due diligence, and
backg ound check p ocesses o hese companies since hey ha e al eady done
ha . This e ec can be no ed in he Figu e 12.
Figu e 12 VC -in es men s and shadow in e es a e. VC -in es men s a e measu ed in
millions o dolla s
In e es ingly, his s udy ound ha unemploymen has nega i e impac on all
eg essions, bu only a s a -phase his was s a is ically signi ican and obus .
The impac o i was ela i ely la ge app oxima ely 7%. This could indica e ha
when a s a up is eady o en e he ma ke , high unemploymen le els de e VC
in es men s due o economic unce ain ies. Mo eo e , Félix e al. (2013)
52
conduc ed a simila panel OLS model wi h ixed e ec s and andom e ec s o
Eu opean coun ies and no iced ha unemploymen had a s a is ically signi ican
nega i e impac on en u e capi al in es men s. Acco ding o my knowledge, i
seems ha hey a e he only ones who ha e s udied unemploymen 's impac on
en u e capi al. Howe e , he e we e se e al a icles ha s udied unemploymen
insu ance and i s e ec on en u e capi al in es men s.
53
This mas e ’s hesis in es iga es he ac o s ha in luence Eu opean en u e cap-
i al in es men s using quan i a i e panel OLS, using bo h ixed e ec s and an-
dom e ec s models. The da ase con ains 24 Eu opean coun ies, wi h a ocus on
he pe iod om 2012 o 2022. Di e en subsamples allowed o he analysis o
ime- a ian e ec s on en u e capi al in es men s in Eu ope. This hesis con ib-
u es o he exis ing li e a u e, p ima ily since many ea lie s udies we e con-
duc ed in he la e 1990s o ea ly 2000s, meaning his hesis in oduces mo e up-
o-da e da a. This s udy has g ea implica ions o policymake s in unde s and-
ing how o eed inno a ions. Also, his hesis has g ea insigh s o und manag-
e s o unde s and how mac oeconomic changes a ec en u e capi al in es -
men s.
The s udy u he suppo s p e ious esea ch on he impo ance o
sophis ica ed capi al ma ke s o en u e capi al. Howe e , he inc easing in e-
g a ion o global ma ke s appea s o ha e educed he need o highly de eloped
capi al ma ke s wi hin Eu ope. A no able inding is he s ong posi i e impac o
he Wu-Xia shadow in e es a e on en u e capi al in es men s, pa icula ly in
he seed and s a s ages. This e ec likely occu s because he shadow in e es
a e ends o ise du ing economic booms, ele a ing alua ions in o he asse clas-
ses and channelling excess unds owa d iskie asse s. These esul s indica e ha
shadow in e es a e is c ucial ac o in luencing VC -in es men s in Eu ope.
G ow h in high- ech expo s signi ican ly a ac s en u e capi al in-
es men s. The s udy also highligh s ha an inc ease in science g adua es has a
subs an ial posi i e e ec on VC in es men s, pa icula ly in la e -s age in es -
men s, while high- ech expo s emain impo an ac oss all s ages.
Addi ionally, his hesis inds ha unemploymen has a dampening
e ec on en u e capi al in es men s. A nega i e ela ionship was obse ed in all
eg essions, al hough i was s a is ically signi ican and s onge only a he s a
phase. This sugges s ha while he o e all unemploymen a e may no di ec ly
6 CONCLUSIONS, LIMITATIONS AND IMPLICA-
TIONS

54
a ec VC in es men s, i does in luence ea ly-s age in es men s, whe e economic
challenges can de e unding.
When examining o e all ends in VC in es men s in Eu ope, pa-
en s show a s a is ically signi ican , hough modes , posi i e impac o app oxi-
ma ely 1-2% on VC in es men s. Du ing he yea s 2012-2018, his e ec may ha e
been in luenced by b oade in es men ends, as in angible asse s also exhibi ed
a s a is ically weak impac on en u e capi al in es men s. These indings sug-
ges ha such in es men s a e p ima ily concen a ed in s a -phase businesses,
as he e is no e idence o signi ican pa en - ela ed e ec s in seed o la e -s age
in es men s. This could be because pa en s a e no ypically p io i ized a he
seed s age, when he business is s ill in he idea phase, no a he la e s age, when
he s a up has al eady en e ed he ma ke and pa en s a e less essen ial.
Based on he esul s o his hesis, maximizing po en ial VC in es -
men s o seed- and s a -phase s a ups appea s o equi e an inc ease in Wu-
Xia shadow in e es a es alongside an accele a ing economy. Addi ionally, a
s ong high- ech expo sec o is c ucial, as i os e s a high- ech en i onmen ha
suppo s he de elopmen o new p oduc s and knowledge. Fu he mo e, a
coun y wi h e icien pa en ing p ocesses and a low unemploymen a e would
be well-posi ioned o a ac g ea e VC in es men s.
Based on p e ious s udies and he indings o his hesis, he eason
behind he apid inc ease in en u e capi al unding in 2021 was iden i ied. Un-
de no mal condi ions, he Wu-Xia shadow in e es a e posi i ely in luences
en u e capi al unding. Howe e , his end did no hold in he 2016-2022 sub-
sample since he e was a weak s a is ical signi icance a 12% le el. In 2020 and
2021, social dis ancing signi ican ly boos ed IT- ela ed high- ech companies,
which a e ypical a ge s o en u e capi al in es men s. As hese businesses ex-
pe ienced apid g ow h, en u e capi alis s inc eased unding, pa icula ly in
la e -s age in es men s. Howe e , since his s udy p ima ily ocuses on he e-
ceip o en u e capi al in es men s, i emains unclea why he demand side
con ibu ed o he su ge in VC unds. This could be an a ea o u he esea ch.
While his hesis p ima ily uses annualized en u e capi al da a, i
lea es se e al unanswe ed ques ions, pa icula ly ega ding he economic
shocks o 2019–2022. One c i ical ques ion is whe he he nega i e impac o is-
ing in e es a es is empo a y o indica i e o a b oade end, which would be
a aluable subjec o u u e esea ch. Ano he key issue ha his hesis could
ha e been ha he obse ed pe iod is ela i ely small, which makes i especially
ha d o i e o e ms in o he panel OLS model. Also, acco ding o OECD ( 2019)
he e a e no s anda dized de ini ions o each o he s ages. This could mean ha
some in es men s ha e been ca ego ized alsely, which could lead o misleading
esul s. Mo eo e , he e can be o he a iables ha could a ec en u e capi al
in es men s, which we e no ound while conduc ing his hesis li e a u e e-
iew. Since his hesis ocuses solely on di ec e ec s, he e a e some limi a ions
ega ding causali y. Ce ain pa ame e s may no ha e an immedia e impac on
VC in es men s, wi h some e ec s po en ially delayed.
55
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