Venture Capital Research, The Role Of Technological Innovation

Since its reform and opening up, China has made sufficient use of late-development advantages. By taking advantage of the enormous technological gap with developed countries, it has achieved continuous technological progress in the manner of"introduction– assimilation– innovation"and maintained a rapid economic growth for nearly 30 years. The rapid economic growth has resulted in the profound improvement of China's factor endowment structure. This signifies the diminishing of late-development advantages of China and also implies that the capacity for independent innovation will play a key role in ensuring the future high-speed growth of China's economy. There are many factors influencing the capacity for independent innovation, but the role played by finance has long been ignored. In fact, finance, especially venture capital, may be the unsung hero that made the US ahead in developing high tech ( European Commission,1995).This paper investigates the mechanism and degree of venture capital's impact on technological innovation in two aspects -- theoretical and empirical. It has been proven that venture capital has a positive impact on technological innovation on both macro- and micro- level and that the number of enterprises'existing patents has no effect on whether they could obtain venture capital or not.Based on theoretical analysis, the impact of venture capital on technological innovation can be found in more than one aspect. But previous literatures tended to focus on one of them so as to neglect the whole effect. In this paper, the effect of venture capital on technological innovation is examined in two perspectives --"capital-increase effect"and"innovation propensity-increase effect", the latter of which is further divided into two parts --"structure effect"and"technology effect". Through decomposition, the whole effect of venture capital on technological innovation is included.As to empirical analysis, estimates on both macro-level and micro-level are made based on data from China. For macro-level analysis, Chinese provincial data and mixed cross section data from 2003 to 2005 were gathered to estimate the impact of venture capital on technological innovation, which overcame the deficiency of insufficient samples in previous literatures using national time series data and thereby yielded more credible conclusion. For micro-level analysis, we explored 402 Chinese venture investment cases and technological innovation in 238 related firms from 1992 to 2007. The results show that venture capital in China encourages technological innovation and that technological innovation level has no significant effect on the availability of venture capital.At the same time, we also studied a special kind of venture capital -- corporate venture capital and its impact on technological innovation. In reality, big enterprises often regard corporate venture capital as a kind of technological innovation strategy. In this way, our research focuses on the impact of corporate venture capital strategy on investor's innovation rather than investee's innovation. The case study indicates that the impact of corporate venture capital on companies'innovation varies under different circumstances.Finally, this paper suggests possible directions for further research based on a summary of key conclusions.