Missing the target: Assessing the role of government in bridging the European equity gap and enhancing economic growth

International evidence suggests that the European venture capital market would grow by itself for management buy-out and buy-in type investments but would not function to promote small and medium sized enterprise growth and employment without a stimulus from policy, as the bridge between risk and return is simply too great. In this paper it is argued that the challenge for policy is to use venture capital as a tool for creating that growth—rather than growing the venture capital industry in and of itself. Whilst acknowledging that the limited public provision of seed capital can prove an effective stimulus for many small enterprises, it is hypothesized that a further target for government in Europe should be the removal of structural barriers—both tangible and intangible—that hinder the development and diffusion of private venture capital. This involves tackling not only regulatory impediments but also providing the information to dispel the embedded fear of risk—and of venture capitalists—that abides across Europe.