Using a comprehensive database of European rms from 21 countries over the period 1998-2008, we nd that venture capital investment has a positive e ect on the rate of new business creation. This is especially true in R&D-intensive industries and in countries with lower taxes on capital gains and higher human capital. We address endogeneity by exploiting data on buyout fundraising, pension fund assets, and on laws that regulate risk capital investments by pension funds. Our results hold when we account for barriers to entry, general access to credit, protection of intellectual property, and labor regulations.

Venture capital investment positively impacts new business creation, especially in R&D-intensive industries and countries with lower capital gains taxes and higher human capital.

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Venture Capital and New Business Creation : International Evidence

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