Corporate Venture Capital Investment Strategy: The Unorthodox Approach of Family-Controlled Firms

Abstract

Drawing on socioemotional wealth and agency theories, we develop hypotheses suggesting that large family-controlled firms (FCFs) are less prone to invest in corporate venture capital (CVC) than non-FCFs counterparts and, when they do, FCFs follow an unorthodox investment strategy. We argue that CVC investments threaten the family’s socioemotional endowments, leading those FCFs that participate in CVC programs to make fewer but larger CVC investments to (1) enhance family control over the start-ups and (2) focus on less risky start-ups at later stages of their development. We also posit that the board composition in terms of independent directors plays a moderating role. We test our hypotheses using a sample of 256 firms listed on the U.S. stock market that come from three technologically intensive sectors. We collected detailed information about the CVC investments these corporations made between 2007 and 2018 and then combined it with ownership structure and corporate governance data. The empirical results are consistent with most of our hypotheses.