Technology Similarity, Bargaining Power, and Corporate Venture Capital Investment Formation

Abstract

This study examines how young ventures select corporate venture capitalists (CVCs) as investment partners when they encounter a tension between value creation and value appropriation. We suggest that each firm’s bargaining power and absorptive capacity can play key roles in determining the formation of an investment relationship between ventures and corporate investors. Our empirical findings show that ventures are more likely to form an investment relationship with corporate investors when they have greater capability to create value via their investors. By contrast, because ventures’ opportunities to create value simultaneously increase corporate investors bargaining power and capability to misappropriate value from ventures, our empirical results demonstrate that ventures are less likely to form investment relationships with corporate investors with similar technological bases when they have stronger bargaining power, which stems from venture’s availability of alternative alliance partners. Therefore, ...