We investigate how public policies related to product market regulation (PMR) influence the ability of European young venture-capital (VC) backed firms compared to a sample of matched non-VC backed firms to grow in size in proportion to their innovative activity. Whereas VCs can presumably offer value-added services to overcome the regulatory constraints of PMR, we find that VC-backed firms relative to non-VC backed ones are more adversely sensitive to these policies. This evidence indicates that PMR impedes the most VC-backed firms’ high-potential for innovation-driven growth.
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