The determinants of a successful venture capital market : analysing economic, stock and bond market influences in the US and EU

Abstract

This study investigates the macroeconomic determinants of Venture Capital (VC) inflows in the United States and the European Union over the period 2007Q1–2023Q4. Employing a quantitative, longitudinal, and comparative econometric approach, the research utilizes Ordinary Least Squares (OLS) regression models with Heteroskedasticity and Autocorrelation Consistent (HAC) standard errors. The empirical analysis reveals distinct dynamics between the two ecosystems. In the US, results align with classical economic theory, where VC inflows are pro-cyclical and integrated with the real economy, demonstrating significant relationships with GDP and stock market performance. Conversely, the EU market appears insulated from real-economy indicators, with GDP and stock market performance found to be statistically insignificant, validating concerns regarding structural fragmentation raised in the Draghi (2024) report. Despite these divergences, bond market performance consistently emerges as a significant negative determinant across both regions, supporting supply-side theory, while inflation demonstrates a positive influence, particularly post-2014. The findings underscore that while the US market remains dynamic, the EU requires deep structural integration to connect capital to its innovative potential.