Corporate Venture Capital Investments Research Articles

Matchmakers or chaperones? How venture capital investors facilitate startups’ corporate venture capital partnership formation through aligning and disciplining

Building upon the recent extension of resource dependence theory, this study examines how venture capital (VC) investors provide social defenses for startups by playing the role of matchmakers through the trust-based aligning effect and the role of chaperones through the power-based disciplining effect, encouraging them to form ties with established corporate venture capital (CVC) investors. We argue that the aligning effect stems from VC investors’ prior ties with CVC investors and is mitigated by the disciplining effect from their network centrality and coalition formation likelihood. In our empirical analysis of the IT industry in the United States between 2001 and 2015, we find support for our theory and hypotheses. The results also show that network centrality and coalition formation are not complementary but substitutable as coalition formation is less effective for more central VC investors.

Compensation incentives, geographical distance, and the successful exit of indirect CVCs

PurposeThe literature suggests that increasing the intensity of compensation incentives for corporate venture capital (CVC) managers can contribute to successful exits of direct CVCs. This study explores the impact of compensation incentives on the successful exits of indirect CVCs under different geographical distances between parent companies and indirect CVC managers.Design/methodology/approachThe authors observed the compensation terms of CVC managers through investment announcements made by listed companies and used a probit regression model to test the hypotheses from a sample of 241 investment events with indirect CVCs in China.FindingsThe results show that if parent companies are geographically close to the managers of indirect CVCs, increasing the intensity of compensation incentives for managers will help the successful exit of indirect CVCs. However, if parent companies are not geographically close to indirect CVC managers, increasing the intensity of compensation incentives for managers will not promote the successful exit of indirect CVCs.Originality/valueThis study contributes significantly to the CVC literature. First, it sharpens our understanding of the differences in operational mechanisms between direct and indirect CVCs. Second, we find that the threshold returns of indirect CVC managers are non-negligible compensation incentives. Finally, the empirical evidence supports that in indirect CVC investments, the geographical distance between parent companies and managers is concerning because it affects whether compensation incentives contribute to the successful exit of indirect CVCs.

When Do Corporate Venture Capital Investments Drive Product and Business Model Innovations?

When Do Corporate Venture Capital Investments Drive Product and Business Model Innovations?

Where to invest? Effects of technological capabilities on corporate venture capital investments

AbstractResearch SummaryWe investigate why a corporate investor makes more corporate venture capital (CVC) investments in certain areas than in others. Focusing on firms' different technological capabilities across distinct technology domains, we argue that a corporate investor's technological capabilities in a given domain affect its likelihood of investing in (1) ventures within the domain in an inverted U‐shaped manner and (2) ventures operating in other technologically complementary domains in a positive manner. We further claim that these two suggested relationships between technological capabilities and the likelihood of CVC investments are shaped by the technology growth rate of the focal domain. We test these arguments in the US medical sector, where incumbent firms are active in CVC investments as a means to acquire external knowledge.Managerial SummaryWe argue that firms exhibit different patterns in their choice of CVC investment areas based on their technological capabilities within a given technology domain. Our findings in the US medical sector indicate that firms are most likely to invest in ventures within domains where their technological capabilities are moderate—neither too weak nor too strong. This suggests that CVC investments serve gap‐filling purposes for technology intermediates. Moreover, corporate investors tend to invest in ventures within domains that are technologically complementary to their areas of strength. However, when a given domain experiences rapid growth, technology leaders in that domain shift their CVC investment focus from complementary areas to that domain to maintain their leading position.

The value of a reputation for sustaining commitment in interfirm relationships: The inclusion of corporate venture capitalists in investment syndicates

We explore the importance of sustaining commitment in inter-firm relationships in the corporate venture capital setting. We find that a corporate investor's past behavior in terms of committing to investment relationships and not abandoning them prematurely confers reputational benefits that increase the likelihood of its participation in future investment opportunities. These reputational effects have a greater impact when the corporate investor has extensive patent stocks and has higher levels of potential slack. Our study highlights the value of sustaining commitment in interfirm relationships, and offers a deeper understanding of an important driver of corporate venture capital program investment opportunities.

The Benefits of Cross-Border Corporate Venture Capital Investment on the Likelihood of a Venture Firm’’s IPO

Purpose - Extant research indicates that CVC investments create value for venture firms and generally enhance the likelihood of a successful venture exit. In particular, despite the globalization of CVC investments, the impact on venture firm exit performance has been largely overlooked. Thus, this study explores the impact of cross-border CVC investments on the likelihood of a venture firm’s IPO. We argue that the foreignness of CVCs increases the likelihood of IPO, but this positive relationship is weakened when CVC units have a tight structure.
 Design/Methodology/Approach - The hypotheses are tested with 1,874 high-technology venture firms in the U.S. that received CVC investments between 1994 and 2009. A two-stage analysis was employed to address potential selection bias. In the first stage, we employed a probit model to predict the probability of receiving cross-border CVC investment. In the second stage, we conducted a probit regression analysis on the likelihood of IPO, incorporating the inverse Mills ratio to address selection bias.
 Findings - We found that the foreignness of CVCs increases the likelihood of a venture firm’s IPO. However, this positive impact is weakened when CVCs have a tight governance structure.
 Research Implications - This study highlights the benefits of cross-border CVC investments and enriches resource dependence theory by reconciling it with institutional theory, depicting the importance of both reducing resource constraints to create value for venture firms and the institutional logic pursued by CVCs. This study suggests that entrepreneurs should be careful with CVC units that prioritize strategic objectives.

The inside track: Entrepreneurs' corporate experience and startups' access to incumbent partners' resources

AbstractResearch SummaryStartups are increasingly turning to incumbent firms for venture capital, anticipating access to the investor's knowledge and complementary assets. However, startups' eventual access to these resources varies widely. This article highlights one important driver of such variance, whether startups' managers were previously employed by an incumbent in the same industry. Using data from the life sciences, I find that such corporate experience can precipitate technical knowledge flows to startups by enabling the generation of relational capital with incumbent firm managers. It also helps startups navigate incumbents' decision‐processes to formalize access to downstream complementary assets via alliances. The former effect is stronger when corporate experience is technology‐focused, the latter when it is commercialization‐focused. Corporate experience at the investing incumbent firm amplifies informal knowledge‐flows but not formal alliances.Managerial SummaryStartups typically expect corporate venture capital investors to facilitate access to resources these investors' parent companies control. However, such resource‐access often does not materialize, with startups struggling to navigate the large, complex organizations within which these resources are located. I identify an important driver of variance in such resource‐access. Prior experience working in an established company in the same industry enhances startup leaders' ability to informally tap into corporate investors' technical knowledge, and to formalize alliances to access corporate investors' go‐to‐market assets. Technology‐focused experience is especially helpful with the former, and commercialization‐focused experience with the latter. Such access is more likely to enable exit for the startup if the established firm has direct experience in the specific product markets the startup is focusing on.

The impact of big tech corporate venture capital investments on innovation: Evidence from the equity investment market

Big technology companies have undeniably left an indelible mark on society, shaping it with their groundbreaking products and services. However, concerns have arisen regarding their market dominance and the potential stifling of competition and innovation, resulting in the formation of ominous “kill zones.” As a response to these concerns, regulatory scrutiny has intensified. To contribute to a better understanding of this issue, this paper introduces a distinctive dataset encompassing the years from 2010 to 2018, drawing from the Chinese equity investment market. We conduct an empirical analysis to examine the impact of corporate venture capital investments made by tech giants on the innovation of the recipient firms. Our results unveil a positive and notable influence of these investments on innovation, particularly in the domain of substantial innovations such as invention patents. Additionally, we delve into the underlying mechanisms propelling this effect, identifying that the innovation incentives of tech behemoths primarily stem from the infusion of financial resources, technological synergies, and a wealth of diversified knowledge accrued through joint investments. These findings bear significant implications for policymakers and regulators who must delicately balance the scales of competition and innovation within the technology sector.

Does directors’ educational background influence financing innovation through corporate venture capital investments? Evidence from France

This study examines whether directors’ educational background influences financing innovation through corporate venture capital (CVC). Our study comprises all CVC operations undertaken by French companies listed on the SBF 120 index between 2000 and 2018. The results show that directors who have graduated from elitist institutions strengthen the involvement of companies in financing innovation. We also find that female directors with a background in management enhance such strategies. These findings have several practical implications for managers and regulators. Thus, to ensure the involvement of corporates in financing innovation, the appointment of directors should be based on specific criteria.

Corporate Venture Capital and Firm Scope

Abstract This study examines whether and how corporate venture capital (CVC) spurs changes in firm scope. Using two text-based measures of firm scope, I provide evidence that CVC investments are strongly correlated with subsequent changes in firm scope among CVC parent firms, including seeding emerging businesses and creating new segments or divisions. Further evidence is consistent with an experimentation view, with more promising ventures having a stronger strategic impact on the scope changes of parent firms. Moreover, the study finds that post-CVC scope changes are primarily built internally and rarely involve killer acquisitions. These changes create value for CVC parents.

The Effect of Categorization Breadth and Granularity on Corporate Venture Capital Investment

The Effect of Categorization Breadth and Granularity on Corporate Venture Capital Investment

DEVELOPMENT OF CORPORATE VENTURE CAPITAL UNDER THE CONDITIONS OF INTENSIFICATION OF INNOVATIVE ACTIVITY

In recent years, corporate venture capital has gained popularity in all areas of the economy in different countries of the world. Along with traditional venture capital funds, business angels and accelerators, traditional corporations also invest in startups around the world. Most often, these processes take place according to the corporate venture capital model. This makes it possible to remove restrictions on the participation in corporate venture funds mainly of legal entities, will open up opportunities for the participation of various subjects in corporate venture funds, and promotes the investment of funds in innovative structures. The purpose of the article is to analyze corporate venture capital, to identify structural characteristics of corporate venture capital and peculiarities of corporate venture investing in Ukraine. During the research, the method of synthesis and analysis, induction (in the study of corporate venture capital, structural characteristics of corporate venture capital and peculiarities of corporate venture investing in Ukraine); the method of schematic, graphic images (for the visual display the received results of the study) has been used. The main structural characteristics of corporate venture capital have been singled out. The signs of structural characteristics of corporate venture capital include the parameters of the corporate venture capital investment model, the types of corporate venture investment goals, criteria for deciding on financing a startup for investors and analysts of corporate investment funds, the types of corporate venture capital investments, the main motives for investment by corporate venture capital funds, ways to promote business growth through corporate investment in venture capital funds, the main financial parameters of the sustainability of corporate venture capital. Ukrainian investors appeared in this field literally 5-7 years ago, but their interest in global international startups is already marked. It was established that for Ukrainian businessmen venture investments at the stages of the B+ series are a new stage of expansion of the investment portfolio. The amount of investment depends on the investor's faith in the project and the arrogance and talent of the startup. If «seed» and «angel» investments are calculated on average in hundreds of thousands of dollars, then capital investments in the innovative business are measured in millions and tens of millions. The main goal of corporate venture capital is strategic innovative business development. Activation of activity through corporate venture capital investments in Ukraine is only developing, and much depends on the business reputation and personal characteristics of managers. Ukraine's economy needs integration into global economic processes through the development of corporate venture capital.

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.

The financialization of corporate venture capital investment? The corporation as a venture capitalist

Abstract Recent trends in corporate venture capital (CVC) activities have added to the size and complexity of the financial system. Intuition suggests that in a period marked by spectacularly increasing start-up valuations, the opportunity to earn large capital gains increases the importance of corporate investors’ financial motivations. Drawing on interviews with 12 Silicon Valley-based CVC units of global industrial companies, we examine if new trends in CVC investment represent a diversion from incumbents’ traditional focus on improving the competitive advantage of their core businesses. Building on the theory of the financialization of non-financial companies, we investigate the relationship between the strategic and financial motivations of CVC investing. We extend theory by distinguishing between developments at the extensive and intensive margins. We argue that the commonly applied quantitative measures capture financialization only at the extensive margin. Qualitative data indicate that the hypothesis of financialization does not hold at the intensive margin.

The effects of environmental performance and green innovation on corporate venture capital

The aim of this study is to provide investors, policymakers and others with information on how greenhouse gas (GHG) emissions and green innovation affect corporate financial performance. Although reporting by corporate venture capital (CVC) firms on GHG emissions as well as their green innovation has increased significantly, especially in the last two decades, little is known about how these two factors affect financial performance. To fill this gap, this article investigates the relationships between environmental performance, green innovation, and financial performance in CVC investments in the US over an 18-year period between 2002 and 2019. The results show the effects of GHG-emission reduction and green innovation, both separately and combined, on the financial performance of CVC firms. These findings contribute to the ongoing debate on the role of corporations in the efforts to reach net-zero emissions. The results indicate that emission reductions give firms a financial advantage over time and that there is a financial interest for corporate investors to drive green innovation. These results have important implications for research and practice and illustrate the importance for corporate investors of including ecological considerations in their overall business strategies to create competitive advantage.

Entrepreneurs' preference for corporate venture capital – The influence of exit strategies and resource requirements

PurposeLiterature on entrepreneurial finance has long overcome the view of an investor as a sole provider of financial capital. Entrepreneurs need to consider more aspects when deciding on an investor. Especially the depiction of corporate venture capital (CVC) investors has long highlighted advantages and disadvantages compared to independent VC (IVC) investors. The authors investigate what drives entrepreneurs' preferences for CVC relative to IVC and thereby focus on two key issues in the entrepreneur's consideration – the role of resource requirements and exit strategies.Design/methodology/approachThe data were collected in an online survey that gathered information on several characteristics of entrepreneurs and their ventures. The resulting data set of 105 German entrepreneurs was analyzed using logistic regression and revealed important drivers for entrepreneurs' investor preferences.FindingsThe study’s findings confirm that the venture's resource needs, specifically the need for marketing resources and access to the corporate network, which play a significant role in the decision on whether a CVC or IVC investor is preferred. Moreover, the analysis debunks the hypothesis that entrepreneurs view a CVC investment as the first step toward acquisition. However, those entrepreneurs striving for an IPO are less likely to prefer CVC.Originality/valueThe study expands the literature on CVC attractiveness and specifically considers the entrepreneurs' intentions and needs. The results confirm but also debunk some widespread perceptions about why entrepreneurs choose to pursue financing from a CVC investor.

The ownership structure of corporate venture capital financing and innovation

Previous empirical findings on the impact of corporate venture capital (CVC) investment on invested entrepreneurial companies' technological innovation are rather mixed. In this paper, I explore a key determinant of this relationship-the ownership structure of CVC firms. It is likely that the ownership structure of CVC firms also affects their ability to select portfolio companies. To address the selection bias of CVC firms, I use propensity score matching to compare private and public CVC-backed entrepreneurial companies. The results show that entrepreneurial companies that are backed by private CVC firms are more innovative than those that are backed by public CVC firms. In addition, I also explore the underlying mechanism and find that private CVC investors are more failure tolerant compared with public CVC investors and this leads to the superior ability in stimulating innovation performance.

Corporate Venture Capital and Startup Outcomes: The Roles of Investment Timing and Multiple Corporate Investors

ABSTRACT The effects of corporate venture capital (CVC) investments on ventures’ revenues and innovation-related outcomes depend on the characteristics of the investors and on the dynamics of the investment process. Recently, venture financing literature has highlighted the importance of investment timing as a driver for investee ventures development and success. Building on the literatures on complementary assets and relative absorptive capacity, we explore how the timing of CVC investments affects ventures’ revenues and R&D intensity. Using a dataset of Norwegian ventures in knowledge-intensive industries, we find evidence for a differential effect of CVC investments when comparing a venture’s early- and late-stage, showing that investments received in late-stage increase ventures’ revenues, but decrease ventures’ R&D intensity. Further, we find that syndication with multiple CVC investors amplifies this effect. This study contributes to the understanding of the CVC-venture relationship and the impact on venture’s post-CVC outcomes.

Investment decisions under uncertainty: Corporate venture capital as a real option

AbstractThis paper aims to assess the role of corporate venture capital (CVC) as option‐creating investments and how corporate investors practice CVC options in their investment decisions. Using a sample of 4206 US firms between 1998 and 2019, our results show that sector fit and geographic fit reduce uncertainty and impact investors' decisions on CVC investments. When exogenous uncertainty is mitigated, CVC‐backed companies experience higher investment amounts than independent venture capital funds (IVC)‐backed ones. The results evidence that follow‐on investments motivate IVC‐backed companies to exit via IPOs. At the same time, a prolonged duration for the organisational learning option leads CVC‐backed companies to exit via acquisition. This study helps investors to reduce uncertainty surrounding investments and improve the usefulness of their real options. We also provide implications for how policymakers target and develop an entrepreneurial ecosystem.

Extending Open Innovation: Orchestrating Knowledge Flows from Corporate Venture Capital Investments

Although corporate venture capital (CVC) has been studied as part of open innovation (OI), assumptions about knowledge flows crossing organizational boundaries between “the inside” and “the outside” have limited those explorations. Drawing on an abductive approach to grounded theorizing, this article introduces an intuitive yet novel framework that traces the sources and applications of knowledge obtained from CVC to derive new conditions for how those investments allow companies to orchestrate knowledge flows to overcome barriers and increase their innovation effectiveness. Besides exploring traditional OI knowledge flows within the CVC context, this article further identifies and examines both outside-out knowledge flows (which help to shape an ecosystem for a corporate innovator) and inside-in knowledge flows (which overcome internal silos to achieve real innovation impact).