Small Business Economics

, Volume 41, Issue 3, pp 651–666 | Cite as

Incremental impact of venture capital financing



This paper investigates the differences in the return generating process of venture capital (VC)-backed firms and their peers that operate without VC financing. Using a unique hand-picked database of 990 VC-backed Belgian firms and a complete population of Belgian small and medium-sized enterprises (SMEs), we focus on the extent to which the presence of a VC investor affects the sensitivity of a firm’s returns to the changes in the capital structure, in the operating cycle, and in the industry dynamics. The differences may stem from the (self-) selection of better companies into VC portfolios, from the venture capitalists’ (VCs) value-adding activities, and/or from both. We examine these factors in the context of a complex simulation procedure which allows separating selection from value-adding when traditional approaches are difficult to implement. Our results indicate that VC-backed firms are able to extract more rent from the changing industry conditions and from the optimizations in their capital structure. The presence of VCs in the firm’s equity seems to have only a marginal effect on the operating cycle efficiency. Overall, the results are suggestive of the value-adding being the main driver of the VC-backed firm’s performance.


Venture capital Performance Simulation Value-adding Selection 

JEL Classifications

L22 L25 M13 G30 



This research is supported by the Belgian Fund for Fundamental Scientific Research (Fonds de la Recherche Fondamentale Collective, FRFC). We are grateful to Sophie Manigart, Mike Wright, Bernard Surlemont, Pierre-Armand Michel, Michael Ghilissen, and anonymous referees for their useful comments and remarks on earlier versions of this paper. Georges Hübner thanks Deloitte Luxembourg for financial support.


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Copyright information

© Springer Science+Business Media, LLC. 2012

Authors and Affiliations

  1. 1.EMLYON Business SchoolEcully CedexFrance
  2. 2.HEC Management SchoolUniversity of LiègeLiègeBelgium
  3. 3.School of Business and EconomicsMaastricht UniversityMaastrichtThe Netherlands
  4. 4.Gambit Financial SolutionsLiègeBelgium

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