Structure of demand and supply of investments of state-subsidized venture capital funds in Latvia

Abstract

One of the tools for financing young innovative companies is state-subsidized venture capital funds (VCF). The paper explores the issues of demand for investment and the structure of Latvian state-subsidized VCF investments. We found that of the total number of applications for investment received by state-subsidized VCFs, only 42.5% come from innovative companies. The number of innovative companies that received investment from state-subsidized VCFs is even lower and amounts to 32.9%; moreover, of the total number of investments, 28.2% were made in young and innovative companies. The volume of VCF investments in innovative companies amounts to 29.6% of the total amount of investments made. The reason for such a low share of financing for innovative companies from state-subsidized VCFs may be a low demand for VCF investment from innovative Latvian companies and VCFs’ unwillingness to invest funds in companies with a high level of information asymmetry or to have more than 15-20 companies in the portfolio of small funds, since this increases the administrative costs of managing VCFs.