Corporate Venture Capital Activity Research Articles

Technology sourcing ambidexterity in corporate venture capital: limitations of learning from open innovation

AbstractIn the rapidly evolving landscape of open innovation, understanding the dynamics of learning is pivotal for corporate success. Yet, the constraints and thresholds inherent in the novel technology sourcing processes remain under-explored. We study 163 firms during the third wave of corporate venture capital activity characterized by the primary focus on innovation to investigate the effects of technology sourcing ambidexterity (the simultaneous pursuit of internal and external sources of innovative ideas) on corporate patenting and realized innovation. Acknowledging limitations of organizational learning, our results indicate the presence of the inverted U-shaped relationship between technology sourcing ambidexterity and innovation and suggest that beyond a certain threshold, increases in ambidexterity are detrimental to organizational learning and corporate innovation because boundary conditions to experimentation as a key element to learning arise. Such restrictions are alleviated by organizational slack, which enhances organizational abilities to orchestrate resources and take calculated risks to go beyond existing internal competencies.

The Impact of Corporate Venture Capital on Enterprise Value in China

Purpose – Chinese corporate venture capital has been particularly active in the Internet sector, with Tencent gradually expanding its business ecosystem through corporate venture capital activities. Therefore, this paper chooses Tencent as the case study object to discuss the influence of venture capital on the value creation of the platform-type business ecosystem, hoping to provide reference for China’s corporate venture capital practices. Design/Methodology/Approach – This paper takes Tencent’s corporate venture capital investment data from 2011 to 2022 as the research object, and uses case analysis, financial index analysis, and event analysis to demonstrate whether there is influence between corporate venture capital and enterprise value. Findings – Through the analysis of the investment motivation, investment mode, and investment projects of Tencent Group’s venture capital, the research results show that corporate venture capital can indeed have an impact on the strategic and financial values of enterprises. Research Implications – There are few studies on the venture capital activities of Internet platform enterprises in the existing literature. Based on two dimensions of strategic and financial value, this paper explores the value creation function of venture capital in the platform business ecosystem, and the research results have reference significance for the venture capital activities of other enterprises.

Impact of Corporate Venture Capital on Digital Business Transformation: A Case Study in Germany

With the growing need for digital business transformation, corporate venture capital (CVC) investors have been faced with the challenge of how to deal with this trend. Although digital business transformation and CVC are highly relevant, previous studies have investigated them separately instead of their relationships. Therefore, this research aimed to study the impact of CVC on digital business transformation to fill this research gap. Based on an exploratory research design, eleven experts from different industries were interviewed. The following results were found in this study: (1) after the CVC unit collaborated with an Open Innovation (OI) unit, the CVC activities were integrated into the decentralized OI activities, and a dedicated team in the CVC unit was responsible for OI and venture client-based OI activities, thus achieving digital OI; (2) CVC was used to pursue ambidexterity, digital exploration or exploitation; (3) CVC supported digital business transformation at the organizational, social, and technical levels, which provided an answer to the overarching research question of how CVC supported innovation processes. Theoretical implications of this study lied in enhancing the understanding between CVC and digital business transformation, thus extending the understanding of CVC organization and impact. Furthermore, this study provided practical implications and recommendations on organizing CVC and using it to achieve digital business transformation according to strategic objectives.

Corporate venture capital contributions to strategic renewal: Neglected paths and barriers

AbstractResearch SummaryVia a study of the corporate venture capital (CVC) unit of a multinational corporation, we examine how CVC contributes to strategic renewal. We find the commonly featured direct path to renewal to have limited impact as access to venture technology is constrained by key external institutional barriers. By contrast, we highlight a less studied, but potentially more important, indirect path: the unit's and hence the parent corporation's access to a high‐technology ecosystem. Obstacles on this path are internal and organizational: including challenges of integration, goal disparities, and competition for resources and credit between the CVC unit and corporate parent. The significance of the indirect path and revelation of understudied institutional and organizational barriers suggest new directions for rechanneling and contextualizing studies of CVC.Managerial SummaryWe studied the corporate venture capital (CVC) unit of a large multinational firm to discover how such investments can have strategic contributions to the parent firm. We found numerous obstacles in using technological knowledge from the ventures the unit invests in because of legal and reputation barriers against disseminating proprietary information. By contrast, opportunities abound from participating in an entrepreneurial ecosystem to which the CVC activities provide access. These expose the unit to the promises and challenges of emerging technologies and fields, providing important information the unit is free to share with the parent to guide strategic renewal. To do so, however, managers must overcome substantial organizational, political, and resource barriers between the CVC unit and the parent corporation.

Beneficial, Harmful, or Both? Effects of Corporate Venture Capital and Alliance Activity on Product Recalls

Despite growing numbers of corporate venture capital (CVC) deals and alliances, their effectiveness is not guaranteed. This paper investigates the positive and negative impacts of CVC and alliance activity on product safety under different levels of market turbulence. Using a resource-based learning perspective and panel data from large U.S. firms, we find that both CVC and alliance activity have inverted U-shaped relationships with product recall likelihood. Market turbulence moderates both relationships, but differently. We discuss how learning theory complements the resource-based view to understand why no or rather bold external venturing are less harmful than small-scale “stuck-in-the-middle” initiatives.

Why is Corporate Venture Capital Activity Among U.S. Public Firms Sticky?

Why is Corporate Venture Capital Activity Among U.S. Public Firms Sticky?

Why Is Corporate Venture Capital Activity Among U.S. Public Firms Sticky?

Why Is Corporate Venture Capital Activity Among U.S. Public Firms Sticky?

The impact of dynamic ambidexterity on the performance of organizations: Evidence from corporate venture capital investing in North America

The purpose of this paper is to study the evolution of corporate investors’ exploitation-exploration allocations and their long-term performance outcomes. The sample consists of 243 North American firms pursuing corporate venture capital (CVC) investments from 1993 to 2017. The results show that dynamic sequential ambidexterity promotes higher firm performance than balanced or simultaneous forms of ambidexterity. Alternating pursuit of exploitation and exploration characterized by a regular frequency of change over time enhances corporate investors’ financial performance. The results suggest that CVC firms develop additional expertise in pursuing both exploitation and exploration activities over time which helps to enhance their performance. The findings also show that in times of crisis, the combined use of both exploration and exploitation in CVC investments enables firms to enhance their financial performance. The results are robust to alternative measures of financial performance and to endogeneity concerns. This paper provides insights to policymakers and managers of firms that are investing in CVC activities.

The effects of corporate venture capital on value creation and innovation of European public owned firms

The practice of corporate venture capital (CVC) has been widely adopted by corporations that invest in highly disruptive start-ups with the aim of fueling innovation and gain strategic advantages. Even if a wide consensus exists on the strategic benefits and performance of CVC investors in the North American venture capital industry, scarce information is available on the European CVC ecosystem. Therefore, the scope of this research is to investigate whether CVC activity, measured as the number of investments, deal size, and the number of realized exits is beneficial for value creation and innovation for European listed companies. Using a panel of CVC investors linked to European listed firms, it is found evidence that CVC activity creates firm value in the period under consideration (2008–2019), confirming North American’s past evidence. Surprisingly, exits convey a negative effect on firm value, suggesting that CVC performance may not be satisfactory enough. Moreover, when considering innovation, evidence is presented that investing in rounds with a higher deal size positively affects investor’s patenting levels, indicating that the later the start-up’s stage in its life cycle, the higher the possibility for the CVC investor to effectively absorb its technology. The relationship is true also for lagged CVC activity, confirming deferred effects on innovation demonstrated on US companies. The findings shed light on the European CVC ecosystem and give room for additional research on CVC investors’ exit performance and co-investors’ benefits on patenting levels

Board feminization and innovation through corporate venture capital investments: The moderating effects of independence and management skills

The purpose of this paper is to investigate the relationship between board feminization and innovation through corporate venture capital (CVC) investments, as well as the moderating effects on this relationship of independence and management skills. This study relies on a set of unique data to measure CVC activity for all French-listed companies that undertook a CVC strategy between 2000 and 2018. We found that the appointment of female independent directors impeded CVC investments, whereas the appointment of female directors with management backgrounds enhanced such investments. Our findings are robust to alternative measures of board feminization. Overall, our results enrich the debate on the usefulness of these innovation vehicles for the French economy.

How Transparent are Firms About Their Corporate Venture Capital Investments?

Corporate venture capital (CVC) is one of the most important avenues for corporate innovation today, yet there can be unintended consequences related to anticompetitive practices. Recent scrutiny from regulators and policymakers underscores their growing desire for more information about firms’ CVC investment activities, even of those previously believed to be too small to matter. Using a comprehensive sample of 115 publicly-listed U.S. parent firms that owned 133 CVC firms, we document that for almost half of the firm-years in our sample, parent firms do not disclose any information about their CVC program. Among the parent firms that do disclose their CVC activities, we find that they disclose less when they make investments in industries outside of their core industry. Firms with a CVC program, relative to similar firms without a CVC program, tend to make more future acquisitions and report less future goodwill asset write-downs. This study documents the current state of affairs with respect to the amount of publicly available CVC information for a large sample of firms, an important starting point for regulators and policymakers to conduct an informed debate about whether disclosure requirements should be expanded.

The Effects of Corporate Venture Capital, Founder Incumbency, and Their Interaction on Entrepreneurial Firms’ R&D Investment Strategies

Corporate venture capital (CVC) investment has increasingly become an important source of entrepreneurial finance. Accordingly, while scholars have traditionally focused on understanding the main motivations behind CVC activity and its impact on the investing corporate firm, more recently, scholars have also started to emphasize the importance of understanding the impact of CVC investment on the investee venture. In particular, these recent studies commonly show that CVC investment has a positive effect on the venture’s innovation. While the positive link between CVC investment and the venture’s innovation output is well established in the literature, the organizational mechanisms through which this relationship unfolds within the venture remain relatively underexplored. In this study, we fill this gap in the literature by examining the effects of CVC ownership, founder incumbency, and the CVC investor–founder interaction on research and development (R&D) investment strategies in venture capital (VC)-financed, technology-based entrepreneurial ventures. In doing so, we aim to provide a novel explanation of the organizational mechanisms that lead to greater investment in research and development (R&D), especially with regard to the interaction between CVC investors and founder managers. We argue that CVC ownership and founder incumbency positively affect entrepreneurial firms’ R&D investment and, more importantly, that the CVC ownership effect is effectively amplified when the founder is an incumbent top manager because of goal congruence and knowledge spillover from the CVC firm. Our empirical analysis supports our hypotheses while addressing potential endogeneity concerns. Our results also support various mechanisms by utilizing the data on CVC investor’s board membership, CVC investor heterogeneity, the founder’s technological background, and the investee venture’s industry.The online appendix is available at https://doi.org/10.1287/orsc.2017.1133 .

Henkel announces unit for management of corporate venture capital activities

Henkel announces unit for management of corporate venture capital activities

Organizational Choices and Venturing Modes: An Analysis of Corporate Venture Capital Activities in Legacy Media

Traditional media companies increasingly search for know-how and novel input outside their own networks to keep up with the rapidly changing environment. As an instrument to explore and exploit new business opportunities, corporate venture capital (CVC) has become particularly important. However, there is little research on the CVC investments by legacy media companies, despite these having been responsible for some of the largest investments in past years. To lay a foundation for research in this field, we investigate how traditional media companies organize their CVC activities. Using an extensive analysis of the 90 largest legacy media companies in Germany, the United Kingdom, and the United States, we explore the organizational structure, investment objectives, investment focus, and industry related- ness of investments. Our findings show the majority of investments are conducted through different forms of direct investments, predominantly focusing on strategic goals and using both exploration and exploitation. Moreover, we identify a trend toward investments in content- and commerce-related fields.

Strategic Media Venturing: Corporate Venture Capital Approaches of TIME Incumbents

ABSTRACTMedia firms act in rapidly changing and converging environments characterized by new entrants and increasing competition from related industries. As a reaction to this, the incumbents of the telecommunication, information technology, consumer electronics, media, and entertainment industry have increased their corporate venture capital activities. Corporate venture capital activities are a popular approach for gaining access to new innovative ideas and opportunities. Despite this practical relevance, the theoretical underpinning of corporate venture capital and the corporate venturing activities of media firms are poorly understood. Therefore, the purpose of this article is to close this gap by defining corporate venture capital as a bundle of dynamic capabilities (“organizational drivetrain”) and revealing the differences and commonalities of telecommunication, information technology, consumer electronics, media, and entertainment incumbents’ corporate venture capital approaches as response to the ongoing convergence of a technology-driven business environment. To do so, we conducted an exploratory study of 3,145 transactions by 68 telecommunication, information technology, consumer electronics, media, and entertainment incumbents in 2,163 start-up companies between 2002 and 2015, detecting, describing, and comparing their corporate venture capital approaches. The findings reveal a taxonomy of three different types of corporate investors, namely “aggressive,” “attentive,” and “dispersive.” While the aggressive approach covers the most active investors of the sample, who invest primarily in early-stage ventures, attentive investors show a more conservative investment behavior, focusing on their core business within their local proximity. In contrast, dispersive investors disproportionately fund established businesses in a broad array of industries. Hence, the study highlights a sector-dependent usage with incumbents of each telecommunication, information technology, consumer electronics, media, and entertainment sector preferring a different investment approach indicating the influence of previous path, positions, and processes.

Corporate venture capital: The role of governance factors

Research on corporate venture capital (CVC) has consistently proven its importance for innovation and other strategic goals, yet information on the antecedents of CVC activity is scarce. This study provides theoretical arguments for the role of governance factors including board, CEO, and institutional ownership characteristics. Empirical evidence from an international sample of global CVC investments shows that factors such as having a board with multiple board mandates and institutional ownership are important factors for CVC activity. The conclusion is that the role of governance factors is important, and that subsequent research should not ignore this group of factors.

Inter-organizational knowledge transfer through corporate venture capital investment

Purpose– The purpose of this paper is to investigate the relationship between corporate venture capital (CVC) investment and the level of knowledge transferred from start-ups to corporate investors. It also delineates the conditions under which CVC investment facilitates the knowledge transfer.Design/methodology/approach– A longitudinal design is used to examine annual snapshots of CVC investment and patent citing activities for the period from 1995 to 2005. This paper uses a negative binomial Poisson regression model to test proposed research hypotheses.Findings– The authors found that that there is an inverted U-shaped relationship between the number of CVC investments and the level of knowledge transferred from the start-up. The results of this study also found that knowledge diversity of the investing firm moderates the inverted U-shaped relationship.Originality/value– This research contributes to the search literature by conceptualizing CVC investment as a distant search process for sourcing external knowledge from start-ups. By arguing theoretically and demonstrating empirically the effects of tie strength of CVC structure and technological knowledge diversity on organizational knowledge transfer, this current study extends the previous understanding and applicability of social relations and technological diversity to understand CVC activity.

The relationship between portfolio diversification and firm value: The evidence from corporate venture capital activity

Corporate venture capital (CVC) activity exposes firms to new technologies and markets. An important but as yet unexplored question is the relationship of the industry diversification profile of the portfolio of venture companies to corporate value creation. Insights from options and diversification perspectives support our hypothesis that diversification of a corporate investor's portfolio of venture companies is related to corporate wealth creation in a U‐shaped relationship. We also propose that a corporate investor's financial constraints moderate the relationship between the diversification profile of its CVC portfolio and value creation. When we tested our hypotheses using a sample of CVC investments across multiple industries, we found support for them, and these findings may inform the CVC activities of corporate investors. Copyright © 2013 John Wiley & Sons, Ltd.

External Venturing and Discontinuous Strategic Renewal: An Options Perspective

This study examines the relationship between a firm's venturing activities and its undertaking of strategic renewal. The study was motivated by some important gaps in the corporate entrepreneurship literature on venturing and renewal. The extant literature has not focused on the different types and dimensions of firms' renewal activities. In particular, discontinuous renewal involving shifts in firms' core businesses is not well understood. Moreover, the conditions that drive firms to undertake strategic renewal have not been examined. For example, it is not known how venturing increases or reduces the benefits of undertaking renewal. This study focuses on a discontinuous form of renewal involving major changes in firms' core businesses and examines firms' external venturing activities that complement their internal development. We examine corporate venture capital (CVC) investments, which are direct minority equity investments made by established companies in privately held ventures. Discontinuous renewal is conceptualized as resulting from a set of related, and often sequential, managerial decisions. The first managerial decision is to initiate growth in a business that is relatively newer or smaller for the organization. The second decision is to move away, or even withdraw completely, from the current core business that enabled prior growth and prosperity for the firm and served as its primary revenue earner. Employing a real options perspective, we argue that CVC investments create growth options in new and existing businesses but do not result in firms' withdrawal from existing businesses. Therefore, we expect CVC activity to be negatively associated with the likelihood of a firm undertaking discontinuous renewal. We also propose that the benefits of withdrawing from existing businesses are even lower, and the costs even higher, for firms in dynamic industries and for firms that possess strong internal capabilities. The predictions of the study are tested using longitudinal data on 477 firms from the 1990 Fortune 500 list for the period 1990–2000. We find support for all our predicted hypotheses. These results help address important limitations in the corporate entrepreneurship literature. The study also contributes to the real options and organizational capabilities literatures.

Corporate Governance in Entrepreneurial Firms: Effects of Corporate Venture Capital and Founder Incumbency on Entrepreneurial R&D Strategy

Corporate venture capital (CVC) investment has increasingly become an important source of entrepreneurial finance. Accordingly, while scholars have traditionally focused on understanding the main motivations behind CVC activity and its impact on the investing corporate firm, more recently, scholars have also started to emphasize the importance of understanding the impact of CVC investment on the investee venture. In particular, these recent studies commonly show that CVC investment has a positive effect on the venture’s innovation. While the positive link between CVC investment and the venture’s innovation output is well established in the literature, the organizational mechanisms through which this relationship unfolds within the venture remain relatively underexplored. In this study, we fill this gap in the literature by examining the effects of CVC ownership, founder incumbency, and the CVC-founder interaction on R&D investment strategies in VC-financed, technology-based entrepreneurial ventures. In doing so, we aim to provide a novel explanation of the organizational mechanisms that lead to greater investment in R&D, especially with regard to the interaction between CVC investors and founder managers. We argue that CVC ownership and founder incumbency positively affect entrepreneurial firms’ R&D investment and, more importantly, that the CVC ownership effect is effectively amplified when the founder is an incumbent top manager because of goal congruence and knowledge spillover from the CVC firm. Our empirical analysis supports our hypotheses while addressing potential endogeneity concerns.