Is Your Knowledge Still Valuable? CVC Knowledge Obsolescence and Portfolio Firm Innovation

Abstract

We examine the impact of a corporate venture capital (CVC) investor’s knowledge obsolescence on their portfolio firms’ innovation performance. We propose that a CVC investor’s knowledge obsolescence, defined as the degree of decline in the value or usefulness of a firm’s knowledge base, has a negative impact on their portfolio firms’ innovation performance as knowledge obsolescence increases the incentive of CVC investors to focus efforts on their own innovation rather than those of the portfolio firms. We also suggest that this effect would be weakened by the prior litigation experience of the CVC investor and the network prominence of the independent venture capital (IVC) that co-invests with the CVC investor. Using a sample of U.S. semiconductor ventures that received a CVC investment in 2006-2015, we find support for all of our predictions. Through this study, we bring in a temporal perspective on knowledge value and provide its implications on CVC investments and portfolio firms’ innovation performance.