Government ownership and Venture Capital in China

China’s venture capital (VC) market features significant government ownership of VCs. We examine the impact of government-owned VCs on the exit success of entrepreneurial firms. We distinguish between types of government VC according to the degree of government ownership (whole versus partial) and the level of government (central versus provincial). We find that partially government-owned VCs increase the likelihood of a successful exit, especially via initial public offering (IPO) in mainland China, where the IPO process is discretionary and heavily regulated. Entrepreneurial firms backed by partially government-owned VCs also have a higher likelihood of exit at times of policy uncertainty and the timing of exit is less sensitive to prevailing market conditions. Provincial government-owned VCs increase exit likelihood; however, the positive effect decreases when multiple provincial government-owned VCs invest in a firm. Our findings suggest that entrepreneurial firms may benefit from government VC investment, but that complete government control of a VC can lead to inefficiencies.