It’s Not You, It’s Me: Technological Learning and Investment Termination in Corporate Venture Capital

Abstract

Corporate venture capital (CVC) investment has become an important source of critical resources to corporate investor and invested venture alike. However, despite an extensive exploration of the establishment and performance outcomes of CVC-venture dyads, the literature has largely neglected the mechanisms that lead to the termination of these intriguing interorganizational relationships. Although termination has been studied in independent venture capital, the dual objectives of CVC i.e., access to superior technology in addition to financial returns, make it important to study the unique factors that drive CVC termination. Accordingly, we studied how the corporate investor’s technological learning explains the likelihood of the termination of an existing investment dyad. Applying a resource dependency framework, we theorized how achieved technological learning reduces mutual dependency and enhances power imbalance, thereby predicting a higher likelihood of investment termination in the subsequent rounds. We also explored how the proposed relationship is contingent on knowledge usefulness and product market similarity. Using a combined dataset on CVC investment and corporate new invention, we find supports for our hypotheses.