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Abstract

Venture capital funding is the segment of the capital market most oriented toward financing new, high-risk companies. Since 1970, however, fewer firms have been able to go public, decreasing the importance of venture capital as a mechanism for financing new firms. Because many new firms have been unable to go public, venture capitalists have to seek other methods of investments. These alternate methods have proven unacceptable and have contributed to a decrease in the use of venture capital as a source for financing new firms. This Note will first discuss the role that government has played in providing adequate financing for new, small firms. It will examine both traditional government responses to capital market imperfections and more innovative capital allocation mechanisms. Second, this Note will explain the use of the royalty financing method by public financial intermediaries. Finally, England's National Research Development Corporation and the Connecticut Product Development Corporation ("CPDC"), intermediaries which use the royalty financing method, will also be examined.

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