The Influence of A Priori Knowledge Spillover on Corporate Venture Capital Investment

Abstract

Despite the best efforts of firms to limit the outward flow of knowledge, a certain level of knowledge spillover is inevitable due to the public good nature of knowledge. Yet little work has considered how firms respond strategically once spillover has occurred. We explore how a priori knowledge spillover from incumbents to new ventures influences their propensity to collaborate through a CVC investment. Although collaboration between incumbent firms and new ventures linked through knowledge spillover may reduce adverse competition between them, it also exacerbates the concerns of new ventures regarding knowledge misappropriation. We track investment ties between 36 incumbents and 417 new ventures in the U.S. Information Technology sector from 1990-2006 and find substantially different collaborative dynamics between dyads of incumbents and new ventures linked by knowledge spillover as compared to comparable dyads that are not. Specifically we show that when there are spillover ties between incumbents and new ventures, investment ties are likely to occur earlier in the development of the venture and involve less innovative ventures. Our results also suggest that new ventures are particularly sensitive to incumbents¡¯ reputation for knowledge misappropriation when there is a spillover tie between them.