Venture Capital and the Growth of European Biotech and Pharmaceutical Firms: Evidence on Selection versus Value Creation

This thesis investigates whether venture capital (VC) financing is associated with the subsequent growth of young European firms operating in the pharmaceutical, biotechnology, and life sciences sectors, and specifically whether the observed relationship is more consistent with a selection mechanism - whereby investors identify already-promising firms - or with a value-creation mechanism, whereby VC investors actively contribute to firm growth after the investment. To address this question, venture capital investment data from Orbis M&A are integrated with firm-level accounting data from Orbis Moody's, using the BvD ID as a unique identifier to reliably link financing rounds to target firms' financial statements. The resulting dataset covers 71 European VC- backed firms operating under NACE codes 2110, 2120 and 7211 between 2014 and 2024, compared with unfinanced firms matched on country, sector, baseline year and pre- investment total assets. Using the natural logarithm of total assets as the main outcome, the empirical strategy combines a nearest-neighbour matching procedure with a Difference-in-Differences specification and a dynamic event-study analysis, applied to two matched samples of differing strictness (12 and 16 pairs). The event-study estimates reveal no statistically significant divergence between VC-backed firms and matched controls in the years preceding investment, weakening a pure selection interpretation. The Difference-in-Differences results indicate a positive association between venture capital financing and total asset growth in both samples; in the moderate sample, this association remains statistically significant even after excluding the investment year itself, suggesting that the effect is not confined to the mechanical accounting impact of the capital injection. Leave-one-out and Russian-pair-exclusion robustness checks confirm that the results are not driven by individual matched pairs. An exploratory analysis of follow-on financing rounds offers descriptive, though not causal, support for a certification role of initial VC backing. Taken together, the evidence leans toward a value-creation interpretation of the relationship between venture capital and firm growth in this sector. At the same time, the limited sample size, the unbalanced nature of the panel, and the asset-based nature of the outcome variable warrant an associational, rather than strictly causal, reading of the results. The thesis contributes to the literature by focusing on a sectoral and geographic setting, European pharmaceutical and biotechnology firms, that has received comparatively limited attention, and by explicitly distinguishing the immediate accounting effect of a financing round from its persistence in subsequent years.