Corporate Venture Capital Units Research Articles

Corporate venture capital unit governance and firm values

ABSTRACT This study analyses which Corporate Venture Capital (CVC) unit governance features are statistically associated with the realization of higher firm values for corporate backers. It focuses on the long-term effect of CVC activities with a comprehensive European sample comprising more than a decade (2010–2020) of CVC investments. The results indicate that the more active CVC units are linked to parent companies with higher Tobin’s Q. A larger share of women in investment teams as well as sector focus amplify this finding. Our results are robust across various model specifications. They confirm the importance of CVC governance for unlocking the full potential of CVC investment programs when considering the most recent decade with considerable economic turbulence. Our findings on the value-enhancing role of sector concentration and female investment professionals add to the resource-based theory and social capital theory, respectively.

Corporate Venture Capital as Driver of Strategic Change? An Interorganizational Learning Perspective

Incumbent firms use corporate venture capital (CVC) as an interorganizational learning mechanism to get access to new technologies or to study and enter foreign markets. When companies adapt their product portfolios or expand their business activities geographically, strategic change takes place. Nonetheless, research still lacks an understanding of CVC's impact on both dimensions of strategic change. Building on learning theory, we examine the impact of CVC activity on product portfolio change and geographic change using a sample of 1,458 CVC units and 6,751 transactions. Our study empirically shows that technology-related CVC investments lead to subsequent product portfolio adjustments, while investments in foreign start-ups drive geographic change. Our paper also finds that these positive change effects diminish with increasing industry and cultural distance, as higher investment uncertainty and risk arise from identifying (excessively) heterogeneous knowledge. Thus, increasing distance reduces the effectiveness of interorganizational learning and impedes strategic change. However, our paper confirms that CVC represents an effective catalyst for knowledge acquisition and related strategic change, offering practical insights for firms seeking to leverage CVC as a low-cost mechanism for product and geographic diversification.

Corporate Venture Capital as Driver of Strategic Change? An Interorganizational Learning Perspective

Incumbent firms use corporate venture capital (CVC) as an interorganizational learning mechanism to get access to new technologies or to study and enter foreign markets. When companies adapt their product portfolios or expand their business activities geographically, strategic change takes place. Nonetheless, research still lacks an understanding of CVC's impact on both dimensions of strategic change. Building on learning theory, we examine the impact of CVC activity on product portfolio change and geographic change using a sample of 1,458 CVC units and 6,751 transactions. Our study empirically shows that technology-related CVC investments lead to subsequent product portfolio adjustments, while investments in foreign start-ups drive geographic change. Our paper also finds that these positive change effects diminish with increasing industry and cultural distance, as higher investment uncertainty and risk arise from identifying (excessively) heterogeneous knowledge. Thus, increasing distance reduces the effectiveness of interorganizational learning and impedes strategic change. However, our paper confirms that CVC represents an effective catalyst for knowledge acquisition and related strategic change, offering practical insights for firms seeking to leverage CVC as a low-cost mechanism for product and geographic diversification.

Heterogeneity in organizational search behaviors: The case of corporate venture capital units

AbstractResearch SummaryOur qualitative study of five corporate venture capital (CVC) units reveals that CVC is organized along one of two distinct pathways—order‐taker or free‐bird. Our two‐pathway model deconstructs the heterogeneity within CVC designs and provides detailed insights into the processual nature of CVC search mechanisms. We find evidence that the locus of problem formulation influences the chosen search behavior. While order‐takers respond to predefined corporate‐led problem formulation, free‐birds allow the venture market to guide search behavior. Differences in search processes can thus be attributed to the pursuit of distinct problem‐solution pairs. Implications for CVC and organizational search literature are discussed.Managerial SummaryOrganizations search for new knowledge and technologies using corporate venture capital (CVC) units. Despite growing evidence of heterogeneity in CVC designs, managers continue to have limited insights for designing and running such CVC units. In contrast to previous recommendations to use structural attributes and/or institutional logics to design and manage CVCs, we provide managers an organizational search lens which reveals significant variations in how corporations search for new ventures. We identified two extreme CVC designs driven by the locus of problem formulation (internal vs. external): order‐takers—who respond to a predefined and corporate‐led problem formulation approach, and free‐birds—who shape the problem formulation guided by venture market dynamics. We point to design differences across popular CVC subprocesses which can be handy for managers.

Autonomy of Corporate Venture Capital Units and Exclusivity in Early-stage Venture Investments

Autonomy of Corporate Venture Capital Units and Exclusivity in Early-stage Venture Investments

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.

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.

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 Practices and the Exit Puzzle

This study analyzes the effect of corporate venture capital (CVC) investment practices on the subsequent exit outcomes of portfolio companies. Specifically, we draw upon institutional theory to examine the role of CVC investment relatedness, commitment, timing, and syndication for exiting portfolio companies through subsequent acquisitions vis-á-vis IPOs. Studying 1,093 CVC investor-investee dyads followed by a portfolio exit between 2010 and 2019, we provide empirical evidence that CVC investors are more likely to acquire their portfolio companies if they follow endo-isomorphic investment practices, while exo-isomorphic practices increase the likelihood of an exit via IPO. Our study contributes towards a better understanding of CVC units as ‘hybrid’ investors and can help both CVC units and entrepreneurial ventures to anticipate exit outcomes that result from specific investment practices.

How Do Corporate Venture Capitalists Evaluate Digital Technology Ventures? A Conjoint Analysis

Drawing upon affordance theory, this study analyzes how corporate venture capital (CVC) investment managers evaluate digital technology ventures for investment. We argue that affordances, namely action potentials that arise from the relation between CVC investors and digital technology ventures, determine investment decision-making. Our study uses experimental data from a conjoint analysis of 432 investment decisions made by 54 CVC investment managers representing 44 CVC units from 34 industries. We find that CVC investment managers value characteristics of digital technology ventures that give rise to digital affordances as well as task-sharing affordances. Our findings show that CVC investment managers’ prior digital technology experience, entrepreneurial experience, and perceived CVC unit dependence on business units influence the interpretation of affordances, and thus the evaluation of investment opportunities. Our study contributes to the understanding of CVC investment decisions and extends affordance theory by a decision-making perspective.

How Organizational Structure Shapes Explorative Innovation in CVC Investment-Relationships

Engaging in exploration is an important source of competitive advantage for established firms. However, exploration is challenging, as it requires the utilization of knowledge outside of firm boundaries. To address this challenge, firms increasingly engage in corporate venture capital (CVC) investments, which allow for assimilation of knowledge held by young ventures. Existing findings on the relationship between CVC and firm exploration remain inconclusive, calling for the investigation of contingency factors. We address this gap by drawing from the knowledge-based view and empirically examining the effect of the organizational structure of CVC units. Further, we consider the interplay of CVCs organizational structure and firms’ diffusion and recombination capabilities for exploration performance. In doing so, the study contributes to our understanding of CVC as external knowledge sourcing mechanism, highlights limitations to this approach, and offers practical insights for corporate investors.

Leveraging smart capital through corporate venture capital: A typology of value creation for new venture firms

Leveraging smart capital through corporate venture capital: A typology of value creation for new venture firms

THE IMPACT OF STRATEGY AND STRUCTURE ON THE PERFORMANCE OF CORPORATE VENTURE CAPITAL UNITS

The range of organisational designs and their interplay with the objectives of corporate venture capital (CVC) units has yet to be fully understood. Using primary qualitative data collected from 20 CVC units, the authors show that although strategy does not always consciously drive structural design, there are clear patterns of beneficial organisational structure that support achievement of particular objectives. Furthermore, the authors discuss the implications of objectives and organic, hybrid and mechanistic structures on CVC performance, contributing both to the CVC literature and the practice of corporate venturing.

Two's company, three's a crowd: The impact of corporate venture capital unit's investment partners on the corporate investor's innovation performance

This paper examines how the number, quality, and depth of the relationships, between a corporate venture capital (CVC) unit and the traditional venture capital (VC) that it coinvests with, affect the corporate investor's innovation performance. We find that there is an inverted U‐shaped relationship between the number and the quality of the CVC unit's partners and the corporate investor's innovation performance. The depth of the relationship weakens the diminishing benefits of coinvesting with many partners. Jointly, our findings illustrate the danger of the ‘more is always better’ principle in terms of VC centrality and provide in‐depth insights for corporate investors to organize innovation.

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.

Organizational Structure and Decision-Making in Corporate Venture Capital

Organizational Structure and Decision-Making in Corporate Venture Capital

A Process Model of Corporate Venture Capital as External Innovation Capability: The Case of JetBlue Technology Ventures

A Process Model of Corporate Venture Capital as External Innovation Capability: The Case of JetBlue Technology Ventures

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.

RECONCILING COMPETING INSTITUTIONAL LOGICS IN CORPORATE VENTURE CAPITAL UNITS

Prior literature highlights the competing institutional logics corporate venture capital (CVC) units have to face due to their intermediary position between the two environments in which they operate — the VC industry and the corporate firm. By conducting an inductive case study of 20 CVC units, we unravel how novel organisational subunits reconcile the conflicting logics in terms of their organisational structure. We show that, instead of fully aligning with one or the other environment, most units form hybrid organisations incorporating elements of both logics. Our data suggest that CVC units tend to follow the hybridisation strategy of selective coupling rather than apply strategies of compromising or decoupling. The type of structure depends on factors on the intra-, inter-organisational and industry level. We further suggest a specific hybridisation pattern that is especially beneficial in the achievement of a unit’s strategic objectives. Our findings contribute to both institutional theory and CVC literature.