Abstract

This paper examines how a firm’s knowledge dependence on the incumbents of an industry affects its choice of corporate venture capital (CVC) investees. We argue that since spinouts, defined as entrepreneurial ventures started by prior employees of the industry’s incumbent firms, inherit knowledge of their parent firms, investing in spinouts allows CVC investors to indirectly access knowledge of the spinouts’ parent firms. Using a sample of CVC investments that took place in the U.S. semiconductor industry in 2006-2015, we find that a CVC investor that has a higher level of knowledge dependence on industry incumbents is more likely to invest in a spinout venture than in a non-spinout venture in the industry. We also find that a CVC investor’s knowledge dependence on a specific spinout’s parent increases the likelihood that the CVC investor invests in the spinout, and this effect is strengthened when multiple founders previously worked for the parent firm. Bridging the CVC literature and spinout literature, our paper demonstrates that CVC investments not only allow firms to access knowledge of the ventures in which they invest, but also access knowledge of other firms that are related to the investees.

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