The Role of Venture Capital on Innovation in the Korean Biotechnology Industry

Abstract

Venture capital financing is generally considered as the most suitable external financing mode for New technology based SMEs, such as biotech SMEs. However, the way in which venture capital investments influence a firm's innovation performance is not as certain. In this paper, we empirically analyzed the impact of venture capital investments on networks and innovation performance in Korean biotech SMEs. Venture capital investment was positively associated with downstream partnerships, supporting Hypothesis 1-2 (β=0.29, p<0.001). Inter-firm collaborations were positively correlated with a firm's innovation performance, supporting Hypothesis 2 (β=0.18, p<0.10 in upstream partnerships, β=0.61, p<0.01 in downstream partnerships). This study showed the mechanism of venture capital investment influencing innovation by promoting downstream collaborations.