It is not clear whether the apparent weakness of the European venture capital sector is caused by (1) a lack of capital supplied, perhaps reflecting lack of liquidity in still somewhat nationally segmented venture capital markets, (2) legal, regulatory and tax barriers, or (3) a shortage of viable exit options for venture capitalists through liquid specialised equity markets. 5.
The second line of defence relates to the role of governments. Even the most flexible and efficient markets cannot fully absorb very large shocks without imposing economic hardship on a considerable number of people. In other words, flexible markets come at a price. They increase uncertainty for employees and often require relinquishment.