20: Entrepreneurial Finance and Venture CapitalMarkt, the pan-European Easdaq and other markets, such as the French Nouveau Marche, reached
critical mass in the late 1990s. The number of European IPOs surged after these markets matured –
especially the Neuer Markt, which had attracted over 300 listings by early 2000. Unfortunately, the
Neuer Markt collapsed almost as fast as it took off. The European IPO market is now effectively closed
to all but the most profitable and established companies, though a few European (and a great many
Israeli) technology companies have been able to execute IPOs on US markets. Unfortunately, this is not
a viable option for most entrepreneurial companies and, as noted previously, US markets are no longer
especially receptive even to homegrown IPOs.
20-4b VENTURE CAPITAL AND PRIVATE EQUITY MARKETS
OUTSIDE THE UNITED STATES AND WESTERN EUROPE
The key venture capital and private equity markets outside the United States and Western Europe
are Canada, Israel, Japan, China and India. The venture capital industries of Israel and Canada differ
dramatically from those of other advanced countries. Canadian government policies led to its venture
capital system, which is based on funds sponsored by labour unions, though this has changed over the
past decade. In a relative sense, Israel has achieved the greatest success in venture capital, because
it routinely has the highest level of R&D spending as a per cent of GDP. As the Finance in practice
box shows, in 2005 Israel’s R&D spending represented slightly more than 5% of its GDP. About 17%
of Israel’s R&D spending was funded with venture capital. Part of Israel’s success can be traced to
deliberate policy decisions in the early 1990s by the Likud government, which took concrete steps to
commercialise defence-related technology developed with public funding.
finance in practiceTHE ROLE OF VENTURE CAPITAL AND PRIVATE EQUITY INVESTMENT IN
FINANCING A NATION’S R&D EXPENDITURES
Venture capital and private equity
investment
Country $US billion % of GDP R&D spending as a % of GDP
United States $46.41 0.37% 2.52
United Kingdom 27.92 1.25 1.44
China 8.80 0.36 1.13
France 8.55 0.40 1.89
Japan 7.95 0.17 2.59
Singapore 4.41 3.77 2.62
Sweden 3.52 0.99 3.19
Germany 3.16 0.11 2.22
Spain 3.12 0.28 1.17
Netherlands 2.74 0.44 1.52
Italy 2.56 0.14 1.01
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