Corporate Venture Capital Investments Research Articles

Strategic Objectives of Corporate Venture Capital as a Tool for Open Innovation

Corporations are confronted with challenges adjusting to changing technologies and markets. Seeking innovations externally through open innovation is a possible approach to go beyond the internal development of innovations. One practice of open innovation to assimilate external knowledge is corporate venture capital (CVC), meaning minority investments in entrepreneurial ventures by incumbent firms, whereby the objectives of CVC investments might be purely financial or may pursue strategic goals. CVC has been identified as a possible approach to ambidexterity, since investments in new ventures can allow to explore new technologies and markets, or to improve internal exploitative capabilities. Although literature on the potential strategic benefits of CVC is abundantly available, a systematic conceptualization of strategic objectives is lacking. Therefore, this paper examines strategic objectives of CVC and seeks to enrich, extend and conceptualize existing research through a theoretical framework. The conceptual foundation of this study embeds CVC in the ambidexterity literature, and clusters objectives of CVC investments in view of an ambidextrous organization and the degree of autonomy given to CVC units. The strategic objectives that can be pursued through CVC investments are (a) strengthening the core business, (b) leveraging the ecosystem, and (c) exploring new markets and technologies. This study concludes with a comprehensive overview of the strategic objectives that can be pursued by CVC, illustrates the barriers and limitations of CVC investments, and discusses the role of autonomy and ambidexterity with respect to the individual strategic objectives. Hereby, CVC is identified as a powerful approach to engage in open innovation practices, since it allows one to pursue a range of different strategic objectives through tapping into external knowledge held by new ventures. Often considered an approach for exploring new technologies through external knowledge acquisition, CVC is also identified as an open innovation approach that allows organizations to increase their internal exploitation capabilities.

Dumb money or smart money? Meta‐analytically unpacking corporate venture capital

AbstractResearch SummaryAs an important strategic tool for entrepreneurial ventures and for established corporations alike, corporate venture capital (CVC) has attracted significant research attention. However, extant studies are equivocal about CVC's performance impact, and measurement approaches vary widely. Separating CVC performance into its corporate and venture elements, we conducted a meta‐analytic structural equation model (MASEM) analysis to quantitatively synthesize 151 effect sizes from 68 studies. While results indicate that CVC does create value for both investing corporation and invested venture, they also hint at different magnitudes for, and nuanced interrelationships between, the various performance aspects. We highlight implications for CVC scholarship in terms of measurement and theory.Managerial SummaryWhat is the bottom line impact of corporate venture capital (CVC)? While CVC is attractive to both startups and corporations, potential benefits are different for each participant—for example, capital and industry contacts for the startup, learning and financial returns for the corporation. The multiple and potentially competing benefits complicate the assessment of CVC's performance impact. Our quantitative summary of 68 empirical studies shows that CVC creates value for startups and corporations alike, but in varying magnitude, suggesting that the benefits are not equally shared between partners and across performance aspects. The nuanced distribution and interrelationship among CVC outcomes have practical implications for startup leaders and corporate investors as they enter into and manage CVC investments.

Patent disclosure and venture financing: The impact of the American Inventor's Protection Act on corporate venture capital investments

AbstractResearch SummaryWe investigate the effects of patent disclosure on corporate venture capital (CVC) investments in technology startups. Toward this end, we focus on the passage of the American Inventor's Protection Act (AIPA), which mandated public disclosure of patent applications. Theoretically, technology disclosure enables CVCs to better evaluate startups and thus, could increase the likelihood of investment relations. Conversely, such disclosure may already satisfy the technology‐acquisition objectives of CVCs, reducing CVCs willingness to form an investment relation after disclosure. Our empirical analysis finds that patent disclosure through AIPA increased the likelihood of receiving CVC investments for startups—specifically in industries where patents have higher information significance. We provide evidence that the observed pattern is mainly driven by a reduction of information constraints regarding startups with patent applications.Managerial SummaryReceiving corporate venture capital (CVC) funding is an important success factor for technology startups. Would disclosure of a startup's innovation increase or decrease its chance of receiving CVC funding? On the one hand, disclosure by startups would reduce uncertainty and search costs for CVC investors, which could increase the chance of CVC funding. On the other hand, such a disclosure would reveal the startups' technology to the corporations, which would in turn reduce corporate incentive to use funding as a window to the startup's technology. Thus, disclosure could also reduce the chance of CVC funding of startups. In this paper, we study the above issue by examining the case of the American Inventor's Protection Act (AIPA), which mandated public disclosure of patent applications. Our results suggest that innovation disclosure significantly improves the likelihood of CVC funding of startups.

Searching Beyond the Horizon: Opportunity and Motive in CVC Investments

We examine how corporate firms deal with the competitive effects of technological change by utilizing corporate venture capital (CVC) investment opportunities to source external knowledge. Whereas previous scholarship has largely focused on the composition of CVC investment portfolios to predict performance outcomes, we examine organizational level drivers of CVC investment behavior. We contend that CVC investment behavior is influenced by the interaction between two fundamental considerations: the supply of investment opportunities made available to the corporate firm because of its position in the environment; and the demand for new technological investments deriving from the need to cope with technological change. We argue that the degree to which CVC programs place bets on external startup ventures with uncertain prospects depends not only on their position in investment syndicate networks but also on how organizational attention is systematically guided by the threats posed by technological change. We analyze investments made by CVC programs of 209 publicly traded firms over 20 years and find that more centrally placed corporate firms in the VC investment syndicate have higher investment rates. We find that greater focus of the corporate firm’s technological capabilities induce them to take advantage of the investment opportunities that arise from a central position in syndication networks. Our findings imply that CVCs serve as a “window on technology” only to the extent that technological positions of corporate firms direct attention to choices within the opportunity set that is determined by the corporate firm’s network of investment relations.

Does Corporate Venture Capital Deliver Performance? A Meta-Analysis

The effect of corporate venture capital (CVC) investments is far from being conclusively discussed in literature. Although the expected benefits of CVCs for corporations and start-ups are undisputed, empirical evidence is mixed. We combine and analyze the results of 32 CVC studies, including 105,950 observations: Our results suggest that while CVC investments are positively linked to start-ups´ and investors´ as well as strategic performance, we find no significant relationship between CVC investments and financial outcomes. The effects are moderated by the timing of the investment, the country and industry-effects. For instance, CVC investments in North America and the ICT sector report significant positive effects, while we find no statistical evidence for the health care sector.

It’s Not You, It’s Me: Technological Learning and Investment Termination in Corporate Venture Capital

Corporate venture capital (CVC) investment has become an important source of critical resources to corporate investor and invested venture alike. However, despite an extensive exploration of the establishment and performance outcomes of CVC-venture dyads, the literature has largely neglected the mechanisms that lead to the termination of these intriguing interorganizational relationships. Although termination has been studied in independent venture capital, the dual objectives of CVC i.e., access to superior technology in addition to financial returns, make it important to study the unique factors that drive CVC termination. Accordingly, we studied how the corporate investor’s technological learning explains the likelihood of the termination of an existing investment dyad. Applying a resource dependency framework, we theorized how achieved technological learning reduces mutual dependency and enhances power imbalance, thereby predicting a higher likelihood of investment termination in the subsequent rounds. We also explored how the proposed relationship is contingent on knowledge usefulness and product market similarity. Using a combined dataset on CVC investment and corporate new invention, we find supports for our hypotheses.

Dude, What Did You Get from Your Parents? Learning by Investing in Industry Incumbents’ Spinouts

This paper examines how a firm’s knowledge dependence on the incumbents of an industry affects its choice of corporate venture capital (CVC) investees. We argue that since spinouts, defined as entrepreneurial ventures started by prior employees of the industry’s incumbent firms, inherit knowledge of their parent firms, investing in spinouts allows CVC investors to indirectly access knowledge of the spinouts’ parent firms. Using a sample of CVC investments that took place in the U.S. semiconductor industry in 2006-2015, we find that a CVC investor that has a higher level of knowledge dependence on industry incumbents is more likely to invest in a spinout venture than in a non-spinout venture in the industry. We also find that a CVC investor’s knowledge dependence on a specific spinout’s parent increases the likelihood that the CVC investor invests in the spinout, and this effect is strengthened when multiple founders previously worked for the parent firm. Bridging the CVC literature and spinout literature, our paper demonstrates that CVC investments not only allow firms to access knowledge of the ventures in which they invest, but also access knowledge of other firms that are related to the investees.

Comparing Practices Across Different External Corporate Venturing Modes: A Qualitative Meta-Analysis

For established corporations, external corporate venturing (CV) is an important means to stay innovative within rapidly changing environments. Corporates can choose between different external CV modes such as corporate venture capital investments, alliances, and incubators/accelerators in order to reach this goal. Despite several insights on singular external CV modes, a comparison of managerial practices to design and enact each mode is missing so far. The same is true for a process model that takes important decisions and practices within the phases of different external CV modes into account. We address these issues through a comparative analysis of external CV processes with the help of a qualitative meta-analysis. This research design allows us to synthesize, compare, and generalize findings from previously published single case studies. As a result, we propose a process model of external CV that explains commonalities and differences in the practices that enact corporate venture capital investments, alliances, and incubators/accelerators. By comparing the practices of these three external CV modes, we contribute to previous literature in the following ways: first, we develop a process perspective missing so far on external CV. And second, we compare differences and commonalities of managerial practices within three different external CV modes, thereby informing future research as well as practice.

Innovation via Inter-Firm Collaboration: The Role of Partner Organizational Design

Firms are increasingly leveraging external knowledge to facilitate their innovation. However, accessing the required knowledge within partner firms may be challenging due to how partners are structured. Yet, we currently have a limited understanding of how firms’ innovation outcomes may be influenced by partners’ organizational structures. We investigate this in the context of relationships between established firms and startups that arise from corporate venture capital investments. Using the theoretical lens of knowledge search and access costs, we argue that centralization of Research and Development (R&D) of the established firm is associated with lower search costs associated with startups finding the relevant knowledge. However, decentralization of R&D is associated with lower access costs in leveraging the located knowledge due to the more effective usage of higher powered incentives to share information within the established firm. We examine this theoretical tension within the context of the global pharmaceutical industry through 496 startup- established firm partnerships. We find that, on average, search costs outweigh access costs, thus R&D centralization of the established firm is associated with superior startup innovation outcomes. We also find that search costs increase with the diversity of the established firm’s knowledge base making centralization of R&D even more beneficial for startups. Finally, we find centralized R&D structures to be most beneficial when the level of market overlap between the firms is moderate due to a trade-off between the absorptive capacity of the startup and competitive pressures between the firms limiting the degree of knowledge sharing increasing access costs.

Alleviating concerns of misappropriation in corporate venture capital: Creating credible commitments and calculative trust

Ventures are often hesitant to accept corporate venture capital due to concerns of intellectual property misappropriation. This is likely to be especially true with startup stage ventures operating in weak intellectual property rights regimes. Drawing on transaction costs economics and game theory, we examine how corporate investors might alleviate concerns of misappropriation by establishing credible commitments to their corporate venture capital program, which discourages opportunistic behavior. We submit that corporate investors can demonstrate credible commitments through prior investment quantity and prior investment continuity, therefore increasing the chances of forming a corporate venture capital–venture investment relationship. Our findings—using data from 11,136 ventures, 300 corporate venture capital investors, and 1782 investments across 18 years—demonstrate that ventures are more likely to pair with corporate venture capital investors that have made a credible commitment to their corporate venture capital program. Also, we find evidence that both quantity and continuity possess an enhanced effect on alleviating fears of misappropriation when a startup venture operates in the same industry as a potential corporate venture capital partner; this is because the corporate venture capital investor possesses both the absorptive capacity to understand the venture’s intellectual property and complementary capabilities to beat them to market.

How Technological Overlap between Spinouts and Parent Firms Affects Corporate Venture Capital Investments in Spinouts: The Role of Competitive Tension

Drawing on the literature on entrepreneurship and competitive dynamics, we investigate how technological overlap between spinouts and parent firms influences corporate investors’ decisions regardin...

Corporate venture capital investments: features and successful practices

The review of domestic and foreign publications presents successful practices of corporate venture investment, which allow to clarify sustainability criteria and requirements for achieving stable functioning of corporate funds. It is shown that the coherence of the fund’s goals with the goals of the parent company, continuity of operation, continuity in relation to strategy, investment focus and the main team, as well as financial stability, which allows us to be a stable partner to portfolio companies throughout their entire life cycle, are of fundamental importance. It is emphasized that corporate venture investments are not an instrument of financial speculation, and the parent company needs the created venture fund, first, as an instrument for search, development, transfer of technologies, products and customers. The main differences between corporate and so-called independent venture capital funds, reflecting various goals, areas of activity, sources of financing, legal status, management remuneration systems and accountability, are examined.

Corporate venture capital: technological innovation or value creation? A comparative study of CVC- and IVC-invested Chinese listed companies

ABSTRACTThis paper analyzes the effects of corporate venture capital (CVC) and independent venture capital (IVC) backing on technological innovation and value creation in invested companies. Using data on Chinese listed companies, we show that CVC investment can induce higher firm value than can IVC investment. By considering different dimensions of complementary assets, technological fit, geographical proximity, and product market relations, we explore the mechanism through which CVC contributes to innovation and value creation in invested companies in China.

Corporate venture capital in the IT sector and relationships in VC syndication networks

This paper investigates the degree to which incumbent information technology (IT) companies efficiently capture information from venture capital (VC) networks. It focuses particularly on the extent to which intangible or financial resources increase the number of relationships with venture capitalists and influence the central position of IT companies within VC networks. Generalized-method-of-moments (GMM) methodology is used herein to analyze the revision of decision-making processes concerning corporate venture capital (CVC) investments conducted by IT companies. To date, the sample used in this study is the first to exclusively focus on CVC investment decisions following the burst of the IT bubble in 2001. The CVC practices of 184 IT companies over the period between 2004 and 2016 are studied, revealing that the R&D investments made by these companies, along with the amount of CVC investments made, strongly impact the number of relationships they forge and maintain and the centrality of their position in VC networks.

Seed Accelerators and Information Asymmetries: Evidence from Corporate Venture Capital Investments

Seed accelerators – a cohort-based new institutional form that combines mentorship, seed investments and networking to nurture early-stage startups for a fixed time period – have gained popularity ...

Do Venture Firms Outlearn Investor Firms? CVC Investments, Venture Firm Learning, and IPO

The extant literature on corporate venture capital (CVC) has overwhelmingly viewed CVC success through the lens of the investor firm, leaving the venture firm’s perspective limitedly explored. Theo...

Technology and Market Relatedness of Corporate Venture Capital Investments at the Portfolio Level

Corporate venture capital (CVC) is being used increasingly by established firms for exploring emerging technologies. Prior studies show that a CVC investor’s innovation performance peaks when the investor-investee dyad exhibits moderate technology relatedness. Unlike at the dyad level, we demonstrate that at the portfolio level, technology relatedness exerts a negative impact on the investor’s exploratory innovation performance, while an increase in market relatedness exacerbates the relationship. Investors should consider portfolio-level relatedness of their CVC relationships within both technology and market domains.

The Life Cycle of Corporate Venture Capital

AbstractThis paper investigates why industrial firms conduct Corporate Venture Capital (CVC) investment in entrepreneurial companies. I test alternative views on CVC by exploiting the entry, investment, and termination decisions of CVC divisions. CVC entry concentrates in firms that experience deteriorations of internal innovation. At the investment stage, CVCs select startups with a similar technological focus but that have a non-overlapping knowledge base, and they integrate technologies generated from these ventures that create strategic value. CVCs are terminated when parent firms’ innovation recovers. Overall, the strategic desire to fix innovation weaknesses after adverse shocks motivates firms to adopt CVCs.Received November 15, 2017; editorial decision March 2, 2019 by Editor Francesca Cornelli. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Concentrating Too Hard? Foreign and Corporate Venture Capital Involvement in Syndicates

We investigate the relationship between investment of corporate venture capital (CVC) and foreign venture capital (FVC), and the concentration of investors involved in a financing round. As forms of venture capital distinct from independent venture capital, CVC and FVC can offer different value to new ventures. However, having FVC or CVC investors in the syndicate can also pose additional risks to other investors. We find that a corporate venture capital or a foreign venture capital affiliation is related to lower concentration of investors. Our results suggest that the investors evaluate not only the venture but also their syndicate partners in determining their relative share of round investment.

Moderating Factors in Distant Investment of Corporate Venture Capital

The role of venture capital as mediator and gatekeeper is well acknowledged and geographical barriers for open innovation have been questioned, but venture capital firms’ distant investments have been investigated only rarely. The strategic benefits accrued from corporate venture capital (CVC) investment depend on the selection of target ventures. Prior research, however, overlooked the incurred information cost for identifying a potential target. Considering that innovative ventures often reside in distant locations, this paper aims to investigate what factors alleviate the information cost for CVCs when identifying target ventures in distant locations. We expect a CVC’s target selection in distant locations will be limited to the ventures under a tight appropriability regime, ventures within the same industries as a CVC’s business units, and ventures with pre-existing investors that a CVC has prior ties with. The hypotheses are tested with the data on CVC investments in the U.S. between 2006 and 2013. The results empirically support the hypotheses.