The effect of venture capital on employment and productivity: an empirical study of first round investments in Norwegian portfolio companies

Abstract

The purpose of this thesis is to find out how private venture capital funding affects employment and productivity in Norwegian portfolio companies. To test this, we analyze employment and productivity in the period from 1995 to 2013 in 134 Norwegian companies that received venture capital funding in this timespan. We use propensity score matching to match the portfolio firms with similar, non-venture capital backed firms. We then perform difference-in-differences analyses to identify how venture capital funding affects employment and productivity in portfolio firms. We find that companies backed by venture capital experience an increase in number of employees after the time of investment, where most of the increase occurs already in the investment year. The effect is persistent and significantly higher than for the matched control firms. Further, we find no evidence suggesting that portfolio companies grow at the expense of other competitors within their industry. Our findings also suggest that firms backed by venture capital experience a drop in productivity after the investment. The drop is immediate, and brings the portfolio firms down to lower productivity levels than their matched control firms. We find nothing indicating that the differences in productivity levels even out over time.