Investment Strategy Of Dual-purpose State-owned Venture Capital

States around the world exert influences on venture capital via state ownership to nurture entrepreneurship and foster innovation.State-owned venture capital is a typical dual-purpose hybrid entity,which concerns social welfares as well as making profits for investors.This paper examines how dual purposes shape state-owned venture capital's investment strategies and how state-owned venture capital's investment decisions interact with private venture capital's investment decisions.Under a two-sided matching model framework of VC market,we demonstrate and test that,in equilibrium,state-owned venture capital picks the “next best”/“marginal” enterprises(those enterprises just below the threshold of private funding).Empirical evidences show that both private venture capital and state-owned venture capital prefer enterprises that create more economic value,while all enterprises prefer private venture capital to state-owned venture capital.In which situation,the most valuable enterprises are funded by private venture capital and less valuable ones are funded by state-owned venture capital.However,among the enterprises neglected by private venture capitals,state-owned venture capital gives preference to those with positive externality(proxied by innovation).These results are brand new in the literature,suggesting that state-owned venture capital commendably fulfill their social mission while pursuing private benefits,under a competitive environment.Furthermore,we find that state-owned venture capital are at least not worse than private venture capitals in terms of nurturing enterprises,while they spur the enterprises' innovation effectively,especially in high-tech industries.We firstly treat the state-owned venture capital as a kind of dual-purpose organization and examine its investment strategy and performance.We distinguish the ‘selection' from the ‘selection bias' for the first time and we emphasize the importance of the original purpose.We provide a brand new perspective of judging the performance of state-owned venture capital.We simulate the unobserved matching value generated during the matching procedure and examine how the agents select each other.Furthermore,we estimate state-owned venture capital's performace based on this.Our results can be used as references of government.