This paper analyses the efficiency of venture capital and its impact on primary equity markets in France and Germany. It shows that venture capital operates according to the signalling model in France and according to the learning model in Germany. Only the learning model can serve as a rationale for government subsidies. In the signalling model, many young venture capital firms succeed without a protected learning period because they already excel in the screening, monitoring and management supporting services they provide. They will seek to signal their quality to outsiders by taking portfolio firms public early. A variety of empirical tests and policy implications are discussed.