Productivity growth in Spanish venture-backed firms

Venture capital has been identified as one of the factors that could help improve productivity and innovation. This chapter presents an innovative proposal to analyze the economic impact of venture capital (VC) on investee companies to address the issue of causality. It tests whether productivity growth rates are better in venture-backed companies than in comparable non-venture-backed ones for a sample of 518 Spanish companies. The case of Spain is relevant because productivity growth rates are currently negative and this might turn into a slowdown in welfare and economic growth in the years to come. The approach is superior to the isolated analysis of employment or sales growth since venture-backed companies would benefit from a flow of funds that the non-venture-backed would not obtain. The findings show that labor productivity gains are statistically higher in the venture group for industry, trade, and services sectors if the ratio sales to number of employees is computed. The results provide further evidence of the positive economic impact of venture funding in countries where productivity growth is a core issue for government authorities. The implication for policy makers is that a positive environment for VC activity would enhance, in the long term, the competitiveness of the economy.