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 (wholly versus partially owned) and the level of government (central versus provincial government). We find that partially government owned VCs (though not wholly government owned VCs) increase the likelihood of a successful exit. Partially government owned VCs especially increase the likelihood of an IPO in mainland China, where the IPO process is discretionary and heavily government regulated. Entrepreneurial firms backed by partially government owned VCs are also more able to be exited at times of policy uncertainty and the timing of exit is less sensitive to market conditions. Investment from a provincial government owned VC increases exit likelihood. However, this advantage decreases as the number of provincial government owned VCs invested in the firm increases. Our findings suggest that entrepreneurial firms may benefit through political connections from government VC investment, but that complete government control of a VC can lead to inefficiencies.