Decoding the corporate venture capital lifecycle: a systematic review and research agenda

The practice of corporate venture capital (CVC) has been widely adopted by corporations that invest in highly disruptive start-ups with the aim of fueling innovation and gain strategic advantages. Even if a wide consensus exists on the strategic benefits and performance of CVC investors in the North American venture capital industry, scarce information is available on the European CVC ecosystem. Therefore, the scope of this research is to investigate whether CVC activity, measured as the number of investments, deal size, and the number of realized exits is beneficial for value creation and innovation for European listed companies. Using a panel of CVC investors linked to European listed firms, it is found evidence that CVC activity creates firm value in the period under consideration (2008–2019), confirming North American’s past evidence. Surprisingly, exits convey a negative effect on firm value, suggesting that CVC performance may not be satisfactory enough. Moreover, when considering innovation, evidence is presented that investing in rounds with a higher deal size positively affects investor’s patenting levels, indicating that the later the start-up’s stage in its life cycle, the higher the possibility for the CVC investor to effectively absorb its technology. The relationship is true also for lagged CVC activity, confirming deferred effects on innovation demonstrated on US companies. The findings shed light on the European CVC ecosystem and give room for additional research on CVC investors’ exit performance and co-investors’ benefits on patenting levels

Corporate venture capital (CVC) investment has increasingly become an important source of entrepreneurial finance. Accordingly, while scholars have traditionally focused on understanding the main motivations behind CVC activity and its impact on the investing corporate firm, more recently, scholars have also started to emphasize the importance of understanding the impact of CVC investment on the investee venture. In particular, these recent studies commonly show that CVC investment has a positive effect on the venture’s innovation. While the positive link between CVC investment and the venture’s innovation output is well established in the literature, the organizational mechanisms through which this relationship unfolds within the venture remain relatively underexplored. In this study, we fill this gap in the literature by examining the effects of CVC ownership, founder incumbency, and the CVC investor–founder interaction on research and development (R&D) investment strategies in venture capital (VC)-financed, technology-based entrepreneurial ventures. In doing so, we aim to provide a novel explanation of the organizational mechanisms that lead to greater investment in research and development (R&D), especially with regard to the interaction between CVC investors and founder managers. We argue that CVC ownership and founder incumbency positively affect entrepreneurial firms’ R&D investment and, more importantly, that the CVC ownership effect is effectively amplified when the founder is an incumbent top manager because of goal congruence and knowledge spillover from the CVC firm. Our empirical analysis supports our hypotheses while addressing potential endogeneity concerns. Our results also support various mechanisms by utilizing the data on CVC investor’s board membership, CVC investor heterogeneity, the founder’s technological background, and the investee venture’s industry.The online appendix is available at https://doi.org/10.1287/orsc.2017.1133 .

This Doctoral Dissertation is triggered by an emergent trend: firms are increasingly referring to investments in corporate venture capital (CVC) as means to create new competencies and foster the search for competitive advantage through the use of external resources. CVC is generally defined as the practice by non-financial firms of placing equity investments in entrepreneurial companies. Thus, CVC can be interpreted (i) as a key component of corporate entrepreneurship - acts of organizational creation, renewal, or innovation that occur within or outside an existing organization– and (ii) as a particular form of venture capital (VC) investment where the investor is not a traditional and financial institution, but an established corporation. My Dissertation, thus, simultaneously refers to two streams of research: corporate strategy and venture capital. In particular, I directed my attention to three topics of particular relevance for better understanding the role of CVC. In the first study, I moved from the consideration that competitive environments with rapid technological changes increasingly force established corporations to access knowledge from external sources. Firms, thus, extensively engage in external business development activities through different forms of collaboration with partners. While the underlying process common to these mechanisms is one of knowledge access, they are substantially different. The aim of the first study is to figure out how corporations choose among CVC, alliance, joint venture and acquisition. I addressed this issue adopting a multi-theoretical framework where the resource-based view and real options theory are integrated. While the first study mainly looked into the use of external resources for corporate growth, in the second work, I combined an internal and an external perspective to figure out the relationship between CVC investments (exploiting external resources) and a more traditional strategy to create competitive advantage, that is, corporate diversification (based on internal resources). Adopting an explorative lens, I investigated how these different modes to renew corporate current capabilities interact to each other. More precisely, is CVC complementary or substitute to corporate diversification? Finally, the third study focused on the more general field of VC to investigate (i) how VC firms evaluate the patent portfolios of their potential investee companies and (ii) whether the ability to evaluate technology and intellectual property varies depending on the type of investors, in particular for what concern the distinction between specialized versus generalist VCs and independent versus corporate VCs. This topic is motivated by two observations. First, it is not clear yet which determinants of patent value are primarily considered by VCs in their investment decisions. Second, VCs are not all alike in terms of technological experiences and these differences need to be taken into account.

Corporate venture capital (CVC) investment has increasingly become an important source of entrepreneurial finance. Accordingly, while scholars have traditionally focused on understanding the main motivations behind CVC activity and its impact on the investing corporate firm, more recently, scholars have also started to emphasize the importance of understanding the impact of CVC investment on the investee venture. In particular, these recent studies commonly show that CVC investment has a positive effect on the venture’s innovation. While the positive link between CVC investment and the venture’s innovation output is well established in the literature, the organizational mechanisms through which this relationship unfolds within the venture remain relatively underexplored. In this study, we fill this gap in the literature by examining the effects of CVC ownership, founder incumbency, and the CVC-founder interaction on R&D investment strategies in VC-financed, technology-based entrepreneurial ventures. In doing so, we aim to provide a novel explanation of the organizational mechanisms that lead to greater investment in R&D, especially with regard to the interaction between CVC investors and founder managers. We argue that CVC ownership and founder incumbency positively affect entrepreneurial firms’ R&D investment and, more importantly, that the CVC ownership effect is effectively amplified when the founder is an incumbent top manager because of goal congruence and knowledge spillover from the CVC firm. Our empirical analysis supports our hypotheses while addressing potential endogeneity concerns.

With the growing need for digital business transformation, corporate venture capital (CVC) investors have been faced with the challenge of how to deal with this trend. Although digital business transformation and CVC are highly relevant, previous studies have investigated them separately instead of their relationships. Therefore, this research aimed to study the impact of CVC on digital business transformation to fill this research gap. Based on an exploratory research design, eleven experts from different industries were interviewed. The following results were found in this study: (1) after the CVC unit collaborated with an Open Innovation (OI) unit, the CVC activities were integrated into the decentralized OI activities, and a dedicated team in the CVC unit was responsible for OI and venture client-based OI activities, thus achieving digital OI; (2) CVC was used to pursue ambidexterity, digital exploration or exploitation; (3) CVC supported digital business transformation at the organizational, social, and technical levels, which provided an answer to the overarching research question of how CVC supported innovation processes. Theoretical implications of this study lied in enhancing the understanding between CVC and digital business transformation, thus extending the understanding of CVC organization and impact. Furthermore, this study provided practical implications and recommendations on organizing CVC and using it to achieve digital business transformation according to strategic objectives.

Compared with new ventures, established firms are difficult to flexibly respond to external environment changes because of their low efficiency in internal innovation activities. With increasing environment uncertainty, the trajectory of technology innovation becomes more and more unpredictable, and corporate venture capital（CVC）has become an important strategic method to incumbents for acquiring innovation resources from new ventures, and rises rapidly in practice. CVC could help incumbents to configure technology real options more effectively through investing a variety of new ventures, thereby enabling them to explore innovation opportunities in much more wide areas. Researches have provided considerable empirical evidence in the positive effect of CVC investment on incumbents’ innovation performance, but there still lacks direct evidence in the effects of CVC real option attributes on investor firms’ technological innovation performance. Therefore, we carry out an empirical research based on real options and organizational learning theories to answer following questions: first, could CVC investment improve investor firms’ technological innovation performance under higher uncertain environment? second, could internal innovation input enhance the positive effect of CVC investment on investor firms’ technological innovation performance? We employ the data of 376 listed firms from Shanghai and Shenzhen stock markets which have made CVC investment from 2001 to 2014, and analyze them with negative binomial regressions. The results indicate that:（1）there is a significant inverted U-shaped relationship between the number of CVC investment and investor firms’ technological innovation performance;（2）environment uncertainty has a significant positive moderating effect on the relationship between CVC investment and investor firms’ technological innovation performance;（3）the internal technology innovation input also has a significant positive moderating effect on the relationship between CVC investment and investor firms’ technological innovation performance. Our further analysis of moderating effect shows that, under high environment uncertainty or high level of internal innovation input, the apex of inverted U-shaped curve shifts to right, and the curve becomes steeper, confirming our hypotheses. We also have ran following robust checks. First, we replace the number of three types of patents with the number of invention patents as the dependent variable, as invention is usually more innovative compared with utility model and appearance design. The results are similar to former regressions. Second, considering that the time lag effect of CVC investment on technology innovation might vary with temporal changes, we replace the dependent variable with 2, 3, and 4 years lag patent numbers respectively, and get similar results too. This paper might contribute to the fields of CVC research and real option theory in following issues: firstly, it provides direct empirical evidence for the relationship between CVC’s real option attributes and investor firms’ technological innovation performance. In terms of the relationship between CVC’s real option attributes and investor firms’ innovation performance, there are many theoretical analyses but little direct empirical evidence. This paper provides direct empirical evidence with the data drawn from China’s listed companies. Secondly, it reveals the complementation effect between external innovation resources acquired from CVC investment and firms’ internal resources input in technological innovation. This finding also indicates that within low innovation input group, the increase in the number of CVC investment actually suppresses investor firms’ innovation performance. It shows that the value of real options depends on not only external factors such as environment uncertainty and investment irreversibility, but also the support from firm internal related resources. However, our research also has limitations: first, we use technology human resources to measure technological innovation input because many listed firms do not disclose R&D expenditures. Second, the value of technological innovation depends on not only its technological advancement, but also the extent to which a firm could successfully commercialize it. Future researches may attain new knowledge through using new commercialized products/services to measure technological innovation performance.

Chapter 9 - Corporate Venture Capital

Corporate Venture Capital (CVC) investments by established firms in entrepreneurial ventures are used to explore for new competences. I examine the question: Under what conditions do established firms engage in CVC? Conducting a field study and a quantitative study, I propose hypotheses about the influence of industry- and firm-level conditions on firms' CVC activity. I test these hypotheses by observing a sample of Fortune 500 firms longitudinally from 1990-2000. I also examine how CVC units enable exploratory learning in parent firms by inductively analyzing my field data. I discuss implications for corporate entrepreneurship, real options, organizational ambidexterity and dynamic capabilities.

Corporate venture capital (CVC) is one of the most important avenues for corporate innovation today, yet there can be unintended consequences related to anticompetitive practices. Recent scrutiny from regulators and policymakers underscores their growing desire for more information about firms’ CVC investment activities, even of those previously believed to be too small to matter. Using a comprehensive sample of 115 publicly-listed U.S. parent firms that owned 133 CVC firms, we document that for almost half of the firm-years in our sample, parent firms do not disclose any information about their CVC program. Among the parent firms that do disclose their CVC activities, we find that they disclose less when they make investments in industries outside of their core industry. Firms with a CVC program, relative to similar firms without a CVC program, tend to make more future acquisitions and report less future goodwill asset write-downs. This study documents the current state of affairs with respect to the amount of publicly available CVC information for a large sample of firms, an important starting point for regulators and policymakers to conduct an informed debate about whether disclosure requirements should be expanded.

This study analyzes the conditions under which Corporate Venture Capital (CVC) investments create growth options for the large firm. Using a real options perspective, the study hypothesizes that number of CVC investments is positively correlated to the number of growth options generated for the large firm. It is also hypothesized that the value generated from the CVC investments is higher when the CVC is undertaken through a dedicated subsidiary, when the CVC sponsoring firm has a high R&D intensity and when firms pursue international CVC investments. Results on a 8 year panel study comprising of 490 CVC investments undertaken between 1994 and 2002 suggest that number of CVC investments is positively correlated to the growth options generated for the large firm. The value generated from the CVC investments was also seen to be higher when the firms had a high R&D intensity. However, contrary to the hypothesis, the results suggested that CVC's undertaken through dedicated subsidiaries create lower value when compared to CVC's undertaken by groups which are a part of the larger corporation. Finally, implications for theory and practice are suggested.

The fast-changing, highly competitive and technology-driven business environment forces established firms to continually search for new business opportunities and innovative ideas. In reaction, corporations such as Google, Microsoft, Cisco and Bertelsmann have launched new corporate venture capital (CVC) units or have intensified existing CVC activities. This chapter examines the structure, patterns and investment focus of telecommunication, IT, consumer electronics and media & entertainment firms’ CVC investments by conducting a data-mining project based on the Thomson Reuters Private Equity database. The data-mining project reveals the increasing importance of CVC activities as a strategic development tool to address the requirements of the increasing costs, speed and complexity of a technology-driven industry since the bursting of the Internet bubble. Therefore, following chapter is one of the first CVC studies to describe and compare CVC investments of the last CVC wave across industry sectors.

Corporate venture capital ( CVC ) activity exposes firms to new technologies and markets. An important but as yet unexplored question is the relationship of the industry diversification profile of the portfolio of venture companies to corporate value creation. Insights from options and diversification perspectives support our hypothesis that diversification of a corporate investor's portfolio of venture companies is related to corporate wealth creation in a U ‐shaped relationship. We also propose that a corporate investor's financial constraints moderate the relationship between the diversification profile of its CVC portfolio and value creation. When we tested our hypotheses using a sample of CVC investments across multiple industries, we found support for them, and these findings may inform the CVC activities of corporate investors . Copyright © 2013 John Wiley & Sons, Ltd.

This paper investigates the effect of corporate venture capital (CVC) on the initiator company’s R&D investment. Using data from A-share listed companies from 2009 to 2016 in China, we find that CVC promotes R&D investment. Besides, the effect of CVC on R&D investment is influenced by industry-related factors; specifically, it is more pronounced in companies that conduct a major business-oriented venture capital. Further tests show that the association between CVC and R&D investment is stronger when the company operates in a high-tech industry, is located in a more developed region and is non-state-owned. Furthermore, the unique characteristics of CVC indicate that both a longer CVC duration and a greater number of CVC capitalists facilitate the association between CVC and R&D investment. Our study suggests that the organizational learning mechanism among CVC participants impacts the initiator company’s R&D investment. The findings have meaningful implications for listed companies in promoting R&D investment through organizational learning from CVC activities.

This pilot study aimed to identify the factors influencing corporations' willingness to establish Corporate Venture Capital (CVC) funds in regions outside core venture capital (VC) centers. Through content analysis, factors affecting the creation and continuation of CVC funds were identified and their interconnectedness was examined. These insights were applied to analyze the initial attempts of a major Latvian corporation to engage in CVC activities. The evaluation of the fund established by the corporation revealed financial losses and a lack of strategic integration of portfolio companies' business ideas into the corporation's operations. However, the corporation's pioneering efforts in CVC activities in an undeveloped and unsupportive environment were acknowledged as beneficial to the broader ecosystem. Several internal factors were identified as potentially detrimental to the fund's success, including limited interaction between the corporation's staff and the fund's portfolio companies and the corporation's partial state ownership. The study highlighted the undeveloped state of the Latvian CVC market and the still-maturing VC market. Nonetheless, public funding for VC funds was a key catalyst for the corporation's fund's development. The study suggests that enhancing government policies and incentives is crucial for encouraging CVC activities in regions with undeveloped CVC markets. Further research is needed to identify other potential market players and their obstacles for CVC activities.

ABSTRACTMedia firms act in rapidly changing and converging environments characterized by new entrants and increasing competition from related industries. As a reaction to this, the incumbents of the telecommunication, information technology, consumer electronics, media, and entertainment industry have increased their corporate venture capital activities. Corporate venture capital activities are a popular approach for gaining access to new innovative ideas and opportunities. Despite this practical relevance, the theoretical underpinning of corporate venture capital and the corporate venturing activities of media firms are poorly understood. Therefore, the purpose of this article is to close this gap by defining corporate venture capital as a bundle of dynamic capabilities (“organizational drivetrain”) and revealing the differences and commonalities of telecommunication, information technology, consumer electronics, media, and entertainment incumbents’ corporate venture capital approaches as response to the ongoing convergence of a technology-driven business environment. To do so, we conducted an exploratory study of 3,145 transactions by 68 telecommunication, information technology, consumer electronics, media, and entertainment incumbents in 2,163 start-up companies between 2002 and 2015, detecting, describing, and comparing their corporate venture capital approaches. The findings reveal a taxonomy of three different types of corporate investors, namely “aggressive,” “attentive,” and “dispersive.” While the aggressive approach covers the most active investors of the sample, who invest primarily in early-stage ventures, attentive investors show a more conservative investment behavior, focusing on their core business within their local proximity. In contrast, dispersive investors disproportionately fund established businesses in a broad array of industries. Hence, the study highlights a sector-dependent usage with incumbents of each telecommunication, information technology, consumer electronics, media, and entertainment sector preferring a different investment approach indicating the influence of previous path, positions, and processes.