Corporate Venture Capital Programs Research Articles

Corporate Venture Capital Programs: A Strategic Response to Industry Tournaments

Corporate Venture Capital Programs: A Strategic Response to Industry Tournaments

Reputation, dynamic capabilities, and the global footprint of corporate venture capital programs

In a sample of 163 corporations observed over a course of four years, we study the joint impact of reputation and dynamic capabilities on the international expansion of corporate venture capital (CVC) programs. Our findings suggest that CVC reputation positively affects the global footprint of CVC programs, and that dynamic capabilities positively moderate this relationship. The results are robust to alternative operationalizations of reputation and dynamic capabilities. A post-hoc analysis suggests that different facets of the CVC reputation contribute to the observed effects. Specifically, a reputation for experience and a reputation for involvement with portfolio ventures positively affect the global footprint of a CVC program. At the same time, a reputation for misconduct with respect to intellectual property suppresses internationalization of CVC programs. The effects of reputations for involvement and misconduct are positively moderated by dynamic capabilities of corporate investors, whereas the effect of reputation for experience is not affected by dynamic capabilities.

Design dimensions of corporate venture capital programs—a systematic literature review

AbstractThere is a plethora of research on organisational design elements of corporate venture capital (CVC) programs. However, the fragmented nature of this vein of corporate venturing research has led to an inconsistent picture regarding the organisational design of CVC programs. The goal of this study is to provide a holistic picture for both scholars and practitioners by integrating empirical research on the design of CVC programs. Therefore, the study employs a systematic literature review approach including a sample of 41 studies published from 1987 to 2023. For a systematic assessment of design elements of CVC programs, an inductive concept development approach is used to illustrate four main design dimensions–personnel, corporate relationship management, investment operating model and portfolio relationship management–which reflect 69 descriptive design elements. While previous studies have mainly looked at individual design dimensions of CVC programs from a strategic perspective, this paper presents comprehensive view on organisational structures of CVC programs by identifying building blocks of CVC design according to chosen objectives and available typologies. By specifying and allocating design dimensions to structural types and objectives of CVC programs, this study may also serve as a foundation for further research on the concepts which prevent high rates of early abandonment of CVCs.

More Freedom, Less Exploration: Evidence from Chinese CVC units

Separating corporate venture capital (CVC) unit from its parent company has become the prevailing view in the structural design of CVC programs. However, such a separation may come at a cost. We draw on institutional view, arguing that the CVC program’s structural independence may incur its concern for lack of legitimacy in the eyes of the parent. To mitigate the risk of illegitimacy, an external CVC unit will decrease exploratory investment in unfamiliar industries and concentrate in the industry that the parent firm operates in. The negative relationship between structural independence and exploratory investment is further contingent on the CVC unit’s experience of exits via IPO, the parent firm’s number of subsidiaries and the regional collectivism where unit is located. The analysis of an unbalanced panel of 363 CVC programs in China from 2007 to 2019 provides empirical supports for our arguments.

Corporate Venture Capital Investment Strategy: The Unorthodox Approach of Family-Controlled Firms

Drawing on socioemotional wealth and agency theories, we develop hypotheses suggesting that large family-controlled firms (FCFs) are less prone to invest in corporate venture capital (CVC) than non-FCFs counterparts and, when they do, FCFs follow an unorthodox investment strategy. We argue that CVC investments threaten the family’s socioemotional endowments, leading those FCFs that participate in CVC programs to make fewer but larger CVC investments to (1) enhance family control over the start-ups and (2) focus on less risky start-ups at later stages of their development. We also posit that the board composition in terms of independent directors plays a moderating role. We test our hypotheses using a sample of 256 firms listed on the U.S. stock market that come from three technologically intensive sectors. We collected detailed information about the CVC investments these corporations made between 2007 and 2018 and then combined it with ownership structure and corporate governance data. The empirical results are consistent with most of our hypotheses.

Progress toward understanding tensions in corporate venture capital: A systematic review

We systematically review the past four decades of research on tensions in corporate venture capital (CVC) and inductively identify three main tensions: (1) multiple stakeholders championing CVC-based exploration versus core business-focused exploitation, (2) CVC programs simultaneously belonging to the corporate parent versus the startup/venture capital (VC) world, and (3) startups and VCs viewing CVC programs as a threat versus an opportunity. By combining the understanding of the CVC phenomenon with that of the paradox literature, we expand our understanding of why, how, and when contradictory goals and multiple stakeholder expectations result in tensions and how these tensions can be managed.

Corporate venture capital and CSR performance: An extended resource based view’s perspective

The purpose of this paper is to extend the Resource Based View (RBV) theory of companies, integrating it into a multidisciplinary context of analysis. Authors tested an empirical model in which corporate venture capital (CVC) impacts on corporate social responsibility (CSR) performance with the aim of creating a sustainable competitive advantage. The authors performed a longitudinal analysis, based on the Generalized Least Square (GLS) model, on 100 American and European companies reported in the Fortune Global 500 ranking from 2015 to 2019. The findings reveal that CVC programs have a positive impact on firm’s environmental and social outcomes. They also broaden the boundaries of RBV theory analysis and contribute to corporate venture capital and corporate social responsibility literature. Additionally, authors develop insights applicable to practitioners to successfully implement CVC practices and CSR strategies jointly.

Heterogeneity in search and investment behavior among corporate venture capital units

There is growing need to understand how heterogenous organizational search behaviors manifest. This is especially critical when executed beyond organizational boundaries. Corporate venture capital (CVC), a well-established form of corporate engagement with startups, is one way in which such search is empirically implemented. Prior CVC research implicitly assumes CVC manifestations to be homogenous which limits our understanding of how and why organizations run CVC programs and to what end. Our qualitative study of five CVC units reveals that corporations manage CVC via one of two distinct pathways—order-taker or free-bird. Our two-pathway model deconstructs the core CVC processes, explains how and why the two pathways result in different outcomes, and provide indications of greater heterogeneity and hybridity within CVC designs. Our findings have implications for the advancement of CVC, external corporate venturing, and organizational search literatures.

The impact of managerial job security on corporate entrepreneurship: Evidence from corporate venture capital programs

AbstractResearch SummaryWe examine the role of managerial job security in the adoption of innovative practices and structures. Utilizing state level antitakeover protections as an exogenous shock, we find that when managers are afforded greater job security through these protections they exhibit a higher probability of initiating a Corporate Venture Capital (CVC) program. Furthermore, the positive effect of job security on CVC adoption is stronger when firms are research intensive, and when there are slack financial resources. Our results suggest that providing managers leeway to experiment while ensuring job security is important for corporate entrepreneurship and the willingness to experiment with innovative strategies.Managerial SummaryEntrepreneurial activity often involves identifying opportunities that the rest of the marketplace overlooks. While this risk taking is celebrated as part of entrepreneurial folklore, in pragmatic terms, for managers of public organizations, it requires going against the prevailing wisdom of important stakeholders. Since stakeholders can hold considerable influence over top managers' employment, managers may avoid innovation if they feel experimentation and/or failure could cost them their jobs. This study demonstrates that when top managers have more job security, they are more likely to experiment with new organizational forms and structures by establishing Corporate Venture Capital units. The study demonstrates that job security not only impacts the amount of risk taken within existing operations, but also the willingness to experiment with novel ideas and activities.

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.

A Dark Side of Corporate Venture Capital

We examine a dark side of corporate venture capital (CVC) programs. Relying on plausibly exogenous variation in passive institutional ownership generated by Russell 1000/2000 index reconstitutions, we show that firms with larger passive institutional ownership cut their CVC investment. This effect is more pronounced for firms with severer managerial agency problems. Further tests show that passive institutional investors induce firms to cut CVC investment in startups that are unrelated to the firms’ core businesses and are of low quality, and when firms have poor track record on CVC investment. By doing so, firm value increases. Our paper uncovers a previously under-explored dark side of CVC programs, their giving rise to managerial agency problems, and helps provide a more complete picture when evaluating CVC programs.

Corporate venture capital programs of European electric utilities: Motives, trends, strategies and challenges

The forthcoming paradigmatic changes in the energy sector point to innovation as being one of the main drivers of growth for utilities. In search for their future business model, open innovation and, in particular the collaboration with startups, is recognized as a means to keep the leading position in a changing industry. In this respect, utilities deriving from the European market, which is considered as a reference case for many other regions in the world, follow the 4th wave of Corporate Venture Capital (CVC) by initiating relevant programs.The aim of the paper is to examine the state of CVC programs of the European electric utilities and, more broadly, to examine their motives, to identify trends and strategies and to discuss the associated challenges. As our current knowledge on the subject is limited, the purpose of the study is to investigate this evolving phenomenon. To this end, a multiple case-study methodology is used by examining the CVC programs of four major European utilities (E.ON, EDF, Enel and Iberdrola). Findings suggest that CVC programs are now integrated in an Open Innovation approach and thus complemented by numerous other initiatives. All CVCs conduct investments tightly linked to the parent’s firm operations and the majority of them have more of a strategic (than financial) rationale in their investments. As a result, the cooperation between startups and the parent company is of great importance and poses a number of challenges related to the development of initiatives that would create linkages, achieve the alignment of the time frame and set up mutually beneficial commercial collaborations, including the ‘if’ and ‘how’ startups may work with competitors.

Voluntary disclosure of corporate venture capital investments

In this paper, we investigate drivers of corporate venture capital investment announcements. Consistent with voluntary information disclosure theories, we find that a public announcement is less likely to be made when the start-up firm is in the seed stage but more likely when the parent company is large, active in concentrated markets and in non-high-tech industries; spends heavily on internal RD has low leverage ratio; and faces more information asymmetry problems. In addition, corporate venture capital programs managed externally disclose more often than internal programs. We find that parent companies facing more severe asymmetric information problems enjoy the highest abnormal returns in response to announcements. This study contributes to the literature on voluntary information disclosure in that it evidences that larger corporations use disclosure of some of their investments in innovative startups strategically as a way to convey valuable information to the market.

Creating Values through Corporate Venture Capital Programs: The Choice between Internal and External Fund Structures

1. Paul Asel 1. is a managing partner at Nokia Growth Partners in Sunnyvale, CA. (paul.asel{at}nokiagrowthpartners.com) 2. Haemin Dennis Park 1. is an assistant professor at the LeBow College of Business at Drexel University in Philadelphia, PA. (parkhd{at}drexel.edu) 3. S.

Creating Values through Corporate Venture Capital Programs:The Choice between Internal and External Fund Structures

Creating Values through Corporate Venture Capital Programs:<i>The Choice between Internal and External Fund Structures</i>

The Life Cycle of Corporate Venture Capital

This paper studies the economics of financing innovation through establishing the life cycle of Corporate Venture Capital (CVC). Using an identification strategy that isolates firm-specific innovation shocks, I find that the CVC life cycle typically follows a period of deteriorated internal innovation and when external information is valuable, lending support to the hypothesis that firms use CVC to acquire innovation knowledge from startups. This information acquisition rationale is further supported at the operation and termination stage of the CVC life cycle -- CVCs select portfolio companies with similar technological focus but that have a different knowledge base, actively use newly acquired information, and change their human capital to facilitate information acquisition; CVC programs are terminated when the informational benefit diminishes.

Are We Driving Away Those We Seek to Learn From?

Extant work reports that organizational integration supports awareness to, and transmission of, novel knowledge across corporate units. Integration, accordingly, is often adopted as part of corporate learning and innovation efforts. In parallel, the past decade has witnessed an emphasis on open innovation strategies, where corporations proactively seek to leverage knowledge from external companies. We advance that integration, while facilitating learning between existing corporate units and partners, may actually deter prospective partners. To that end, we study the Corporate Venture Capital (CVC) context, where established firms launch CVC- programs to pursue investment in innovative entrepreneurial companies. The predications are estimated using a rare-events logit methodology and a sample of 157 startup-stage CVC-investments and a matched-sample of possible investments that did not materialize. We find that, compared to loosely-integrated CVC programs, tightly-integrated programs are less effective in ...

Voluntary Disclosure of Corporate Venture Capital Investments

In this paper we investigate drivers of corporate venture capital investment announcements. Using a comprehensive sample of investments made by corporate venture capital programs of publicly listed US corporations, we find that about 2/3 of the investments are publicly announced. Consistent with voluntary information disclosure theories, we find that a public announcement is less likely when the startup is in the seed-stage, but more likely when the parent company is large, spends heavily in internal R&D and capital expenditures, has high leverage ratio, and faces more information asymmetry problems. These results are robust to controlling for syndicate size and structure. We further examine the stock price reaction to announcements. On average, the abnormal return of announced deals is around 2.1% at announcement date. Controlling for endogeneity of the announcement decision, we find that parent companies facing most severe asymmetric information problems enjoy highest abnormal returns.

Which Iron Cage? Endo- and exoisomorphism in Corporate Venture Capital Programs

Through an inductive study of six corporate venture capital programs, we unravel how new organizational units resolve competing forces from two different institutional environments. The data suggest that the organizational structure of units that enter a new environment depends on whether they “focus their isomorphism” internally toward the parent (“endoisomorphism”) or externally toward the industry (“exoisomorphism”). The focus of isomorphism depends on whom the units seek legitimacy with and on the professionalization of their top management teams. We discuss implications of the findings for institutional theory, corporate venture capital, and corporate venturing more generally.

Crossing the Organizational Species Barrier: How Venture Capital Practices Infiltrated the Information Technology Sector

We examine the contagion processes whereby practices originating in one organizational population spread into and diffuse within a second. We theorize that “endemic” innovations native to one population spread to other populations through two distinct forms of contagion. We test this argument by observing information technology firms’ adoption of corporate venture capital programs. Results suggest that geographic proximity triggers cross-population contagion, that within-population contagion arises from different causal mechanisms, and that firms maintaining close cross-population ties pay less attention to the actions taken and outcomes experienced by other firms within their own industry. Fueled by emerging technology and a robust economy, corporate equity investing in start-up ventures exploded in the 1990s. The decade’s last five years alone saw a 3,800 percent increase, as corporate venture capital investments grew from $172 million to $6.8 billion (Venture Economics, 2006). Corporations scrambled to establish venture capital programs, identify best practices, and take equity in young entrepreneurial ventures. Rene Savelsberg, head of Philips’s corporate venture capital arm, described his program’s genesis as follows: