The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program

The effectiveness of the many government programs to finance small firms has attracted little empirical attention. This paper examines the largest U.S. public venture capital initiative, the Small Business Innovation Research (SBIR) program, which has provided over $7 billion to small high-technology firms between 1983 and 1997. Using a unique database of awardees compiled by the U.S. General Accounting Office, I show that SBIR awardees grew significantly faster than a matched set of firms over a ten-year period. The superior performance of SBIR awardees was confined to firms based in zip codes with substantial venture capital activity. The impact of the awards was pronounced in high-technology industries. No increase of performance was associated with multiple awards. These patterns are consistent with the awards playing an important role in certifying firm quality, but also with some distortions of the award process.