Firms that have less than two rounds of venture capital funding and less than $5 million in venture capital investments are excluded from the list of venture capital-funded companies because this evidence is insufficient to support the claim that on balance of probability they are venture capital-controlled.
While some firms with less than $5 million in venture funding may have exceeded 51 percent or more of share ownership to venture investors, it is also possible that founders or other individuals still retain ownership of more than 50 percent at some firms which received more than $5 million in investment from venture funders. Similarly, in some cases, venture investors making a single major investment may acquire more than 50 percent of firm ownership; in other cases, firms that have received several small rounds of venture investment may remain predominantly in private hands. Thus while these criteria are not accurate in all cases, they represent the best available proxies for institutional ownership.
The Committee further assumed that all venture capital firms fail to meet the individual ownership criterion themselves. This assumption is used in this study to meet the possible objection that a venture capital firm that raised more than half of its funding from U.S. individuals would find that even firms in which it owned 51 percent would remain eligible. As venture funds typically do not reveal their sources of funding, it is not practical to differentiate between venture capital firms in terms of their ability to meet the eligibility criteria. Thus, we assume that all firms meeting either a) or b) criteria above are excluded from the NIH SBIR program.
Using these assumptions, we generate the following results from further analysis of the VentureSource data.