Effects of venture capital and private equity funds in Austria

Austria is one of the countries in which the supply of venture capital and private equity is below average. The analysis in the study shows that venture capital plays an important role for the economy. It contributes to innovation, stimulates employment and investment demand and enables capital-constrained companies that do not have access to bank loans to develop further. This strengthens growth development and increases public revenues. In addition, VC firms promote the development of companies by taking an active role in management and providing contacts, know-how and experience.

The study also examines which factors are essential for the development of VC markets. Such factors were identified on the basis of a comprehensive literature analysis, including in particular the tax, regulatory and cultural environment. In addition, two best-practice examples were identified in Europe (Luxembourg & Denmark), where private equity and venture capital are significantly better developed than in Austria. Nevertheless, they differ from each other and focus on different aspects.

A comparison with the European peer countries shows that Austria has a below-average position, particularly in the tax and regulatory environment. Necessary reforms in this regard would firstly be a generally more favorable taxation of both corporations and capital income. In addition, legal clarity should be achieved with regard to the taxation of carried interest and employee shareholdings. The taxation of carried interest as part of capital income and tax concessions for employee shareholdings should be considered here. Secondly, the quality of regulation and its accuracy should be improved. A regulatory framework is needed that supports the growth of companies and facilitates access to external equity. Thirdly, the establishment of a fund of funds is conceivable. This could attract equity capital from institutional investors (such as pension funds and foundations) to provide venture capital for the earlier stages of companies.

In order to estimate the economic and fiscal effects of PE funds in Austria, three hypothetical scenarios are examined in this study using the PuMA model. The results show that the additional supply of venture capital significantly strengthens overall economic development and increases employment demand. Depending on the scale of comparison, additional value added of EUR 1 to 4 billion can be expected.