ONLINE CHAPTERS
A 2010 report published by the World Economic Forum^4 found that industries that include private equity
activity tend to experience more rapid growth (measured by total production, value added measures and
employment), and employment levels in these industries are often less volatile than in other industries.
Thus, the private equity industry can be an important catalyst for innovation, economic development
and growth. Furthermore, the industry can provide a number of less tangible benefits, including the
provision of management advice and improving corporate governance for small businesses that receive
venture backing.
In a report published in 2006, PricewaterhouseCoopers studied the economic impact of the Australian
VC and PE industry.^5 It found that the industry provided substantial benefits in terms of employment
and innovation, accounting for 650,000 jobs or 8% of private sector employment. In their 12-year study
of Australian listed companies that had received venture capital funding prior to listing (venture-backed
IPOs),^6 Victor Bivell and Brindha Gunasingham found that, on average, these companies consistently,
and substantially, outperformed the rest of the listed market. They suggest this outperformance could
be attributed to various factors, which could include better management practices introduced by their
venture capital investors, as well as the skills of these venture capitalists in identifying, investing in and
nurturing companies with the potential to out-perform.
A study published in the US by the National Venture Capital Association documented the scale
and economic effect of 30 years of VC investment in the United States.^7 Over the period 1970 to 2005,
American venture capitalists invested over $410 billion in more than 23,000 companies in all 50 states.
Venture capital-backed companies employed 10.0 million people and generated $2.1 trillion in sales
during 2005, representing 9.0% of jobs and 16.6% of GDP for that year. The study also found that ‘venture
capital-financed companies had approximately twice the sales, paid almost three times the federal taxes,
generated almost twice the exports, and invested almost three times as much in R&D per $1,000 in
assets as did the average non-venture capital-backed companies’. Finally, the study documented that, on
average, every $36,000 in VC investment created one new job.
Much the same pattern is observed in Western Europe, the other major international market for
venture capital. A study by the European Private Equity and Venture Capital Association found that
VC-backed European companies generated significantly higher growth rates in sales, research spending,
exports and job creation during the 1990–1995 period than did otherwise comparable non-VC-backed
companies.^8 Updates of this study show that European private equity funds invested €8.4 billion in 8399
VC-stage companies during 2003. Roughly one-fourth the total investment was in early-stage companies.
Finally, an astonishing 95% of European venture-backed companies said that they either would not exist
or would not have developed as quickly without VC investment.4 ‘Globalization of Alternative Investments’, Working Papers Volume 3, The Global Economic Impact of Private Equity Report 2010,
World -Economic Forum.
5 Economic Impact of Private Equity and Venture Capital in Australia, 2006. PricewaterhouseCoopers and AVCAL.
6 Victor Bivell and Brindha Gunasingham, ‘Australian Venture Backed IPOs – 1992–93 to 2003–04’, 2005. Private Equity Media and FitzBiz
Investment Analysis & Strategy. http://www.fitzbiz.com.au/Australian%20Venture%20Backed%20IPOs%201992%20-%202004%20
Sep%2009.pdf.
7 See Jeanne Metzger and Channa Brooks, ‘Three Decades of Venture Capital Investment Yields 7.6 Million Jobs and $1.3 Trillion in Revenue’,
National Venture Capital Association (22 October 2001). Downloaded at http://www.nvca.org.
8 The study is entitled The Economic Impact of Venture Capital in Europe, and is available for downloading at http://www.evca.com. Updates
of this study include the Survey of the Economic and Social Impact of Venture Capital in Europe, published by EVCA on 20 June, 2002, and the
EVCA Final Survey of Pan-European Private Equity and Venture Capital Activity 2002, published by EVCA on 4 June 2003.