Toward an entrepreneurial state? A novel typology of government roles in venture capital

Abstract

Government intervention in venture capital markets is typically justified by “funding gaps” arising from market failures. However, recent policies do not neatly fit this logic, demonstrating more interventionist government roles that leverage venture capital to achieve broader societal goals, such as combating climate change and strengthening technological sovereignty. The current literature does not adequately capture these emerging government roles. Therefore, this paper adopts an abductive approach to explore legitimate government roles in venture capital markets. These roles are defined as coherent combinations of goals for venture capital policy, failures that justify government intervention, and associated policy means. Drawing on the innovation policy literature, which also identifies system failures, transformation failures, and technological sovereignty as legitimations for government intervention, along with insights from in-depth interviews with key actors in the Dutch venture capital market, the paper introduces a novel typology of four archetypal government roles: the laissez-faire government role, the nurturing government role, the conditioning government role, and the entrepreneurial government role. While each of these roles is endorsed by some respondents, the degree of endorsement varies. This typology encourages future studies on venture capital policy to adopt a more diversified understanding of government roles beyond the dominant market failure logic. Furthermore, innovation policy research should place greater emphasis on venture capital policy, especially within innovation policy mixes designed to achieve societal missions or strengthen technological sovereignty.