As far as the venture capital market is concerned, it is widely assumed that Europe lags way behind the United States. Recent papers have asserted that, in order to bridge this gap Europe should piggyback on US capital market institutions and their securities regulations. This paper critically examines these claims and suggests that European policymakers should focus on overcoming the institutional, legal, fiscal, and cultural obstacles that are understood to impose significant costs on start-up firms. A really underrated issue in the success formula of the US venture capital industry is the influence of legal forms on the quality of venture capital contracting. This paper analyzes the characteristics of European company structures, particularly the Dutch private company, and questions whether they are sufficiently flexible and responsive to solve the two-sided agency problems that characterize the relationship between the entrepreneur and the venture capitalists. This paper then argues that the introduction of an optimal organizational form for high-tech start-ups, based on US experiences, is crucial to Europe's attempt to emulate the successful US venture capital market. It is suggested that policymakers, with the support of interest groups, should undertake the task of developing a new limited liability vehicle. Indeed, a new organizational form, which is characterized by clarity and simplicity, may make high profile venture capitalists more willing to invest in new enterprises. The prospects for the introduction of a new vehicle depend on the regulatory competition and emulation, which together may eventually culminate in overcoming path dependent barriers to the European venture capital market.
|Publication status||Published - 2001|