Strategic Venturing in the Global Medical Device Industry: Corporate Venture Capital and Entrepreneurship

Abstract

Corporate venture capitalists (CVC) invest in entrepreneurial startups for reasons including financial and strategic goals. In high-tech industries CVCs may use direct equity investment to stimulate innovation that is directly relevant to the investing firms' innovation efforts. At the same time, CVC is also used for strategic goals which may include blocking competitors or gaining a window on competitor's technology. In this paper, I analyze corporate venture capital (CVC) investment and innovation performance by startup companies in relation to the investing firm. I provide project level evidence that CVC investment is associated with the production of knowledge by the startup that is directly relevant to the investing firm. This paper makes significant contributions to our understanding of project level dynamics and the innovation returns to CVC with respect to the level and staging of CVC investment. I find evidence of a U-shaped relationship between total CVC investment in a project and innovation performance and of diminishing innovation returns to later rounds of CVC investment. Furthermore, in a given industry, CVCs share a common pool of potential startups in which to invest. Empirically, the likelihood of production of relevant knowledge by the startup is greater if the founder is an entrepreneurial clinician as opposed to a non-clinician background. At the same time, the likelihood of production of relevant knowledge for the investing CVC is diminished if multiple CVCs (competitive CVCs) coinvest in the same startup firm. The suppression of innovation performance is pronounced in higher rounds of investment.