The Law and Finance of Venture Capital Financing in Europe: Findings from the RICAFE Research Project

M. Da Rin, G. Llobet, U. HEGE, U. Walz

European Business Organization Law Review

juin 2006, vol. 7, n°2, pp.525-547

Départements : Finance

This survey article summarises the findings of four research projects on the venture capital industry in Europe and the role played by legal institutions and the legal framework. A study on patent litigation insurance argues that insurance can create a level playing field for small innovators, but that compulsory insurance can only be justified as a transitory scheme. The second study argues that intermediaries from countries with a better legal tradition will provide more governance and value-added services, even when investing abroad. It also provides supportive empirical evidence based on an extensive questionnaire study. The third project investigates the relationship between venture investments and a widely used legality index in thirty-nine countries, finding that better laws facilitate faster deal screening and origination, lead to a higher probability of syndication and also facilitate board representation of the investors. The final study documents a significant performance gap between the European and the US venture capital industry, but argues that the difference can not be attributed to differences in legal originKey Words: venture capital; patent litigation; legal system; corporate governance; legality index; performance.