Human capital, intellectual capital, and government venture capital
| Date | 06 November 2017 |
| DOI | https://doi.org/10.1108/JEPP-D-17-00008 |
| Published date | 06 November 2017 |
| Pages | 359-374 |
| Author | Ikenna Uzuegbunam,Yin-Chi Liao,Luke Pittaway,G. Jason Jolley |
| Subject Matter | Strategy,Entrepreneurship,Business climate/policy |
Human capital, intellectual capital,
and government venture capital
Ikenna Uzuegbunam
College of Business & Center for Entrepreneurship, Ohio University,
Athens, Ohio, USA
Yin-Chi Liao
Department of Management and Marketing, Western Illinois University,
Macomb, Illinois, USA
Luke Pittaway
College of Business, Ohio University, Athens, Ohio, USA, and
G. Jason Jolley
Voinovich School of Leadership and Public Affairs, Ohio University,
Athens, Ohio, USA
Abstract
Purpose –The purpose of this paper is to examine the impact of human and intellectual capital on start-ups’
attainment of government venture capital (GVC). It is theorized that as a result of government predisposition
toward enhancing knowledge spillover and certifying underinvested start-ups, different types of human and
intellectual capital possessed by start-ups will distinctly affect GVC funding.
Design/methodology/approach –The Kauffman Firm Survey, a panel data set of 4,928 new US firms over
a five-year period (2004-2008), serves as the data source. Ordinary least squares regression, coupled with
generalized estimating equations to check for robustness, is used to determine the effect of human and
intellectual capital on GVC funding.
Findings –Founders’educational attainment has a greater impact than their occupational experience in
GVC funding. While the number of patents owned by the start-up increases GVC funding, the number of
trademarks and copyrights negatively influence GVC funding.
Originality/value –By distinguishingbetween differentaspects of human and intellectualcapital, this study
provides a more nuancedunderstanding of the influence of new ventureresources in the context of GVC.
Keywords Human capital, Intellectual property rights, Patents, Copyrights, Government venture capital,
Trademarks
Paper type Research paper
1. Introduction
New venture financing is a crucial determinant of entrepreneurial strategy and performance.
The questions of how, when, and from whom new ventures receive financing is central to
entrepreneurship research (e.g. Hallen, 2008; Hsu, 2004; Katila et al., 2008; Lerner, 1999, 2002;
Shane, 2009). Prior research suggests that success in financing from professional sources
such as venture capital (VC) firms (Hellman and Puri, 2000; Hsu, 2004), corporations
(Dushnitsky and Lenox, 2005; Katila et al., 2008; Park and Steensma, 2011), and
governments (Brander et al., 2010; Cumming, 2007; Lerner, 1999; Callagher et al., 2015) has
important consequences for new venture outcomes. In addition to committing financial
resources to new ventures, professional investors also tend to bring extra financial
resources that new ventures need to survive and prosper (e.g. reputation; Hsu, 2004).
This paper focuses on the funding criteria of a specific category of professional
financing –government venture capital (GVC) –by examining the influence o f two types of
entrepreneurial resources (i.e. human capital and intellectual capital) on GVC funding. GVC is
defined as government efforts that directly fund entrepreneurial firms through equity
investments (see Cumming, 2007; Lerner, 2002). GVC funding is the focus of this research for
Journal of Entrepreneurship and
Public Policy
Vol. 6 No. 3, 2017
pp. 359-374
© Emerald PublishingLimited
2045-2101
DOI 10.1108/JEPP-D-17-00008
Received 1 July 2017
Revised 22 August 2017
Accepted 22 August 2017
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2045-2101.htm
359
Human capital,
intellectual
capital, and
GVC
two reasons. First, though extant literature has made notable strides in elucidating the funding
criteria of professional venture financing, little is known about the funding decisions of
government venture capitalists (GVCs) (Leleux and Surlemont, 2003; Lerner, 2009). The lack
of research in this area is surprising as GVC is increasingly a crucial source of new venture
financing for high-growth start-ups in the USA and worldwide (Lerner, 2002). For example,
under the Obama administration, the US Government announced plans to invest an additional
$2 billion to support job-creating start-ups (The White House, 2011). In fact, from 2000 to 2008,
about 4.5 percent of American start-ups had received some GVC investments (Brander et al.,
2010). Similar trends have been observed in other countries as well (Brander et al., 2010),
indicating the increasing importance of GVC.
Second, GVC is often based on public policy considerations, necessitating a different lens
than those used by traditional venture capitalists (VCs) (Pahnke et al., 2015). Prior research
suggests two key arguments for GVC investments in new firms: the certification hypothesis or
the R&D spillover hypothesis. Certification hypothesis suggests that GVC could serve as a
certifying mechanism for new underfunded ventures that may be in sectors neglected by
traditional, independent VC. GVC may signal the quality of start-ups, thereby increasing the
chance of attracting VC and external financing (Lerner, 1999; Meuleman and De Maeseneire,
2012). R&D spillover hypothesis indicates that GVC investments in young firms may generate
knowledge spillovers that will benefit other firms or society as a whole (Lerner, 2002).
Knowledge spillovers refer to external benefits from the creation of knowledge that accrue to
parties other than the creator and occur within or across organizations and networks (Agarwal
et al., 2010). More specifically, R&D spillovers from GVC can address the problems of R&D
underinvestment and increase knowledge stocks in society, thereby enhancing the public good.
An embedded assumption in both the certification and spillover hypotheses is the notion
that since GVC involves public money, it should impact the public good by yielding positive
externalities and value to the public at large[1]. Pahnke et al. (2015) support this argument
by highlighting the selection criteria used by program officers in the National Institute of
Health, which is focused on funding technical innovation that will improve public health.
As Murray (2007) notes, “venture capital is as much an instrument of innovation policy as
enterprise policy”(p. 116). Thus, the public good derived from certification and knowledge
spillovers can drive the funding decisions of GVCs. Though prior work highlights some
important public policy considerations that distinguish GVC funding from traditional VCs,
they overlook the relevance of these considerations in the specific funding criteria of GVCs.
This paper addresses this gap in the literature. It theorizes that human and intellectual capital
may vary in their certification and knowledge spillover potential and can affect GVC funding
differently. These predictions are tested using a five-year, longitudinal sample of 4,928 new
ventures that were founded in the USA in 2004 –Kauffman Firm Survey (KFS) (see Coleman
et al., 2013; Markova et al., 2011). US start-ups are studied, while recognizing that insights gained
from this analysis may likely extend to other countries with similar GVC programs. These
findings show that founders’educational attainment has a stronger positive impact than their
occupational experience on GVC funding. It also shows that while the number of patents owned
by the start-up increases GVC funding, the number of trademarks and copyrights negatively
influence GVC funding. Collectively, these findings contribute to the literature by highlighting
the differential impact of a start-up’s human and intellectual capital on GVC funding. In the
following sections, the model, methods, and results will be discussed in detail. The paper then
concludes with a discussion of relevant research, practice, and policy implications.
2. Theory and hypotheses
2.1 Background
Scholars have long debated the policy rationale for governmental involvement in new
venture financing. Some received accounts suggest that the major rationale stems from the
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