The Lack of Late-stage Financing in Europe

Abstract

This dissertation picks-up a current discussion amongst academics, practitioners, and politicians that criticize a lack in late-stage venture capital (VC) financing for promising European startups and warn about severe consequences for the European economy if this situation remains. To better understand this lack of financing, an empirical analysis on a panel of 16 European countries has been conducted to identify the determinants of late-stage VC investments in Europe. Among the five identified variables of interest, namely pension fund contributions, divestments via IPOs, trade sales, and write-offs, as well as socioeconomic conditions, the impact of IPO divestments has been found positive and significant. The finding on IPOs is robust to further specifications and confirms the substantial relationship between late-stage VC investments and the public equity markets. The results allow for the conclusion that a high number of IPO divestments are a strong driver of late-stage venture capital activity in Europe. The findings complement the wide field of venture capital research by taking on a specific perspective of the late-stage VC activity in Europe and should give policy-makers valuable recommendations on how to address the lack of late-stage financing through institutional changes in the public equity markets.