Searching Beyond the Horizon: Opportunity and Motive in CVC Investments

Abstract

We examine how corporate firms deal with the competitive effects of technological change by utilizing corporate venture capital (CVC) investment opportunities to source external knowledge. Whereas previous scholarship has largely focused on the composition of CVC investment portfolios to predict performance outcomes, we examine organizational level drivers of CVC investment behavior. We contend that CVC investment behavior is influenced by the interaction between two fundamental considerations: the supply of investment opportunities made available to the corporate firm because of its position in the environment; and the demand for new technological investments deriving from the need to cope with technological change. We argue that the degree to which CVC programs place bets on external startup ventures with uncertain prospects depends not only on their position in investment syndicate networks but also on how organizational attention is systematically guided by the threats posed by technological change. We analyze investments made by CVC programs of 209 publicly traded firms over 20 years and find that more centrally placed corporate firms in the VC investment syndicate have higher investment rates. We find that greater focus of the corporate firm’s technological capabilities induce them to take advantage of the investment opportunities that arise from a central position in syndication networks. Our findings imply that CVCs serve as a “window on technology” only to the extent that technological positions of corporate firms direct attention to choices within the opportunity set that is determined by the corporate firm’s network of investment relations.