TLDR:
- Chinese government venture capital funds have been successful, investing significantly in AI innovation.
- A recent paper suggests that government-run VC funds could be an effective vehicle for innovation policies.
An article in CityAM discusses the success of Chinese government venture capital funds and questions why the UK government does not run its own venture capital funds. The article highlights a recent paper from the National Bureau of Economic Research, which analyzed the use of government venture capital in China compared to private venture capital. The paper found that government venture capital funds in China have invested $912 billion over the last decade, nearly double the spending of all EU industrial policies. These funds have been focused on investing in AI innovation, with AI companies accounting for over half of the government VC fund investment portfolios.
The researchers suggest that government as venture capitalists could be a new and effective way to carry out innovation policies, combining features of private venture capital with traditional government policies. One key difference between private VCs and government VCs identified in the study was that government funds were more likely to invest in AI companies across the entire country, rather than just in high GDP regions. This resulted in government VC funds being able to over-invest in low GDP per capita regions.
The paper also noted that when both government and private venture capital funds invested in the same company, government funds almost always invested first. This suggests that private capital views government money as a valuable signal. However, the researchers also warned of potential risks with government VC funds, such as granting a high degree of discretion to officials and bureaucrats, which could lead to corruption and political capture.
In conclusion, the article emphasizes the success of Chinese government venture capital funds in driving AI innovation and suggests that the UK government could learn from this model to boost innovation and entrepreneurship in the country.
