Corporate Venture Capital Research Articles

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?

Banks’ investments in fintech ventures

We investigate the patterns and performance of banks’ investments in fintech ventures in the United States. We document that banks, as compared to independent venture capitalists (IVCs), invest a larger proportion in fintech startups and achieve a higher IPO exit rate. The better exit performance is neither explained by banks’ tendency to invest in later-round or larger deals, nor contributed by banks’ following successful peer IVCs. Banks’ outperformance is mainly concentrated in fin-native fintech startups and those whose business operations overlap with banks’ core business segments, which is consistent with the corporate venture capital (CVC) literature and the conjecture that banks possess unique industry expertise that facilitates their selection of fintech startups. In addition, banks participate more on the boards of fintech startups than of other ventures, implying that the better investment performance is not purely driven by selection.

CEO duality and tenure, and the adoption of goal ambidexterity in corporate venture capital

In a study of corporate venture capital investments by 81 corporations during a two-year period, we explore the factors leading to goal ambidexterity, or a balanced pursuit of strategically- and financially-oriented deals, by incumbents. Our results indicate that CEO characteristics play an important role in the adoption of goal ambidexterity by corporate investors. Specifically, CEO duality positively affects the adoption of goal ambidexterity, whereas CEO tenure exerts a negative influence on the likelihood of such adoption.

Between benefit and risk: how entrepreneurs evaluate corporate investors

Start-up growth is inevitably dependent on the provision of external resources. Yet, even though corporate venture capital could be an attractive funding source as it provides financial as well as crucial additional resources, corporate venture capitalists (CVCs) are seen as a two-sided sword by entrepreneurs. We, therefore, investigate entrepreneurs’ consideration of potential CVC investors and conceptualize a model of their willingness to approach a CVC investor. Using a conjoint experiment with 1680 investor profiles evaluated by 105 entrepreneurs, we show that entrepreneurs consider the investor’s motivation, deal experience, access to firm-specific resources, and long-term financial commitment of funds. However, entrepreneurs’ evaluation differs depending on their need for specific resources, as well as their fundraising experience. We thereby highlight entrepreneurs’ anticipatory trade-off decisions in the light of resource dependence and help CVC managers to optimize their communication and management efforts to attract the most suitable portfolio companies.

How Tech Startups Protect Against the Downside of Corporate Venture Capital

How Tech Startups Protect Against the Downside of Corporate Venture Capital

Evaluating Affordance-Based Opportunities: A Conjoint Experiment of Corporate Venture Capital Managers’ Decision-Making

We integrate opportunity evaluation reasoning with affordance theory to develop a nuanced theoretical model of action orientation in entrepreneurial decision-making. We test our model with a conjoint experiment of 864 decisions made by 54 corporate venture capital (CVC) managers evaluating digital ventures for investment. Our findings provide evidence that CVC managers value two sources of digital affordances: the recombinability and the reprogrammability of digital technologies. The results show that CVC managers individuate affordance-based investment opportunities based on their personal and organizational background. We contribute to a fine-grained understanding of action potentials in the evaluation of opportunities and advance affordance theory through a cognitive judgment perspective.

Invention traits and alliance formation for high-tech startups

ABSTRACT Alliances are essential for high-tech startups that are seeking resources and preparing for future expansion. This study examines how the attributes of high-tech startups’ early-stage inventions influence the likelihood of forming alliances. Specifically, we explore the impact of technological novelty and economic scope of inventions on alliance formation. Using a sample of 408 healthcare startups, we empirically demonstrate that technological novelty has a negative impact on alliance formation, whereas economic scope has a positive impact. We also find that the engagement of corporate venture capitalists can mitigate the negative impact of technological novelty on high-tech startups’ alliance formation.

Heterogeneous venture capital and technological innovation network evolution: Corporate reputation as mediating variable

Amid the pandemic of COVID-19, the collaborative innovation network of enterprises is conducive to the sharing of innovation resources, knowledge transfer, and technology diffusion, which is closely related to the improvement of corporate technological innovation performance. From the perspective of corporate reputation in the field of venture capital investment, and based on transaction cost theory, basic resource theory and reputation effect theory, this paper discusses the evolution mechanism of corporate technological innovation network, constructs an integrated model for the relationships between heterogeneous venture capital investment, corporate reputation and technological innovation network evolution, and then examines the impact of different types of heterogeneous venture capital investment on the evolution mechanism of technological innovation network, as well as the mediating effects of corporate reputation. Through the empirical analysis of the data obtained from the survey of 500 enterprises, the research shows that that independent venture capital is more conducive to enhancing the internal corporate reputation and promoting the evolution of technological innovation networks towards being self-centered; corporate venture capital is more conducive to consolidating the external reputation of enterprises and promoting the evolution of technological innovation networks towards being holistic. Corporate reputation has some mediating effects on the relationship between heterogeneous venture capital and technological innovation network evolution.

Case Study on the Role of Corporate Venture Capital: Platform Kakao and Cryptocurrency Exchange Upbit

Case Study on the Role of Corporate Venture Capital: Platform Kakao and Cryptocurrency Exchange Upbit

Ambidextrous positioning of Asian IVCs and CVCs from a knowledge-based view

ABSTRACT This study aims to investigate the potential ambidexterity of Asian Institutional Venture Capitalists (IVCs) and Asian Corporate Venture Capitalists (CVCs) when their ambidexterity could be considered as the output of a Knowledge-Based View (KBV) and the input for their strategic marketing positioning. The data that have been analysed were retrieved from Crunchbase.com, and they regard the 50 most active Asian IVCs and Asian CVCs (in the period from 2017 to 2020). The Asian VCs under investigation show similar ambidexterity, but with different intensity, adopting analogous strategies, but with diverse tactics. More specifically, Asian IVCs demonstrate greater venture capability (probably due to their institutional aims) and concentration on monetary goals, and they seem to adopt ambidextrous behaviours (‘exploring innovations’). On the opposite, Asian CVCs seem more propense to fund companies that are aligned with their strategy and that are related to their core-business (‘exploiting developments’), empirically demonstrating less intense orientation to ambidexterity.

The effect of green startup investments on incumbents’ green innovation output

Green innovation is essential to green transformation. Incumbents possess the resources to exploit these green innovations and establish them on the market, while startups typically explore the underlying technology in the first place. Drawing on the notion of absorptive capacity, it is argued that corporate venture capital (CVC) allows incumbents to tap into valuable external knowledge of green startups, thus being a fruitful vehicle to increase their internal green innovation output. To empirically test the model, a panel dataset of 1,568 firm-year observations of U.S. firms from 2000 to 2018 is used. The authors find empirical support that CVC investments in green startups are associated with increased green patent applications of the parent firm, thus allowing researchers and practitioners better to assess startups’ sustainability impact across firm boundaries. The study contributes to the green entrepreneurship literature by enriching the understanding of the distinct roles of incumbents and startups and their joint interplay in the green transformation of markets.

Venture capital activities under uncertainty: US and UK investors behavior.

We investigate how in the context of Corporate Venture Capital (CVC), the investment decisions affect the likelihood of their subsequent exit strategies. We use OLS and probit regression as well as Weibull distribution of residual values, given its reliability and validity for studying lifetime analysis. Based on a sample of 8722 VC-backed ventures with the first investment dates between 1999 and 2018 in United States (US) and United Kingdom (UK), the results show that the presence of CVCs positively affects the funding amounts and the duration of the investment. CVC funds are more generous and more patient than Independent Venture Capital (IVC) funds regarding their investments in ventures. Moreover, the findings provide evidence that the exit strategies are directly influenced by the funding amounts and the duration of the investment which are influenced, in turn, by the fund type. Greater funding increases the likelihood of IPO exit which is reduced by longer investment duration. Our results are robust to alternative estimation methods, namely two-stage treatment-effects regressions. These results help the various stakeholders (VC funds, investors, ventures) make crucial decisions regarding investment amounts and duration, and exit.

The impact of platform corporate venture capital vs. traditional corporate venture capital on internet initial public offering underpricing: Evidence from Chinese-listed internet firms

PurposePlatform firms are playing an increasingly major role in venture investment. Based on the motivation perspective and signaling theory, this paper examines the effects of platform corporate venture capital (CVC) versus traditional CVC on Internet IPO underpricing.Design/methodology/approachThe sample consists of 117 Chinese Internet firms that went public between 2004 and 2019. Two-stage Heckman regression analysis was used to test several hypotheses.FindingsThis paper finds that, compared to traditional CVC firms, platform CVC firms increase Internet IPO underpricing. In particular, with the contingency of strong prior performance or implementation of China’s “Internet plus” policy, platform CVC firms increase Internet IPO underpricing more than traditional CVC firms. With increasing Internet penetration, platform CVC firms will increase Internet IPO underpricing less than traditional CVC firms.Practical implicationsAs CVC firms differ in their key resources and motivations used to realize their strategic goals, IPO firms should formulate their resource acquisition strategies according to their resource needs and the contexts in which they operate.Originality/valueBy identifying the differences between platform CVC and traditional CVC, this paper complements previous research on the role of CVC backing of IPOs and extends the knowledge of CVC investment by shedding light on the contingency value of corporate investors and Internet IPO underpricing in emerging markets.

Corporate venture capital and interfirm rivalry: A competitive dynamics perspective

AbstractResearch SummaryThis study views corporate venture capital (CVC) investment as a form of inter‐firm rivalry. Adopting a competitive dynamics perspective, we argue that when a focal corporate investor invests in an entrepreneurial venture, that investment sends important competitive signals to its rivals, thereby increasing their likelihood of initiating a matching response. We theorize how three factors characterizing such investment—the amount of funding, industry relatedness between the corporate investor and the entrepreneurial venture, and the reputation of the corporate investor—can influence rivals' awareness of competitive threat, their motivation to respond, and therefore their likelihood of launching a matching counterattack. Our results demonstrate substantial support for our theoretical model.Managerial SummaryThis study views CVC investment as a form of competitive interaction, arguing that when a corporate investor participates in an investment round, it sends a competitive signal to its rival, motivating the latter to respond by also investing in CVC. Because of this counteraction, the competitive advantages of firms' CVC strategies may be temporary as rivals catch up and nullify the benefits of a CVC initiative. Thus, when planning strategy, CVC managers need to take potential rival counteractions into account and carefully assess the competitive implications of their CVC strategy, perhaps by avoiding harmful counteractions through initiatives more subtle in execution and orientation, and thus “under the radar” of rivals.

Corporate Venture Capital and Sustainability

Corporate Venture Capital (CVC) has been receiving increasingly more attention all over the world as a special way for accessing new ideas and innovative opportunities through minor-share investing in established companies. The purpose of CVC investments may either be purely financial or to pursue strategic goals. Organisations often seek to take actions that impact positively on sustainability by assembling related knowledge and technologies. These resources may come from invested startups through the use of a CVC programme. This research aims to measure and analyse the Corporate Venture Capital programmes of companies listed in the ISE B3 Corporate Sustainability Index. To this end, a three-step methodology was conducted. First, a systematic review of the literature took place, followed by a review of companies based on secondary sources such as their websites. Finally, a survey was developed and was opted to survey companies through their Investor Relationship (IR) public channels. Results show that 27 of the companies listed in the ISE B3 Index have CVC programmes that contemplate organizational initiatives besides investment. In this sense, one can claim that at least 70% of the ISE B3 Index companies are somehow involved in CVC operations. The results contribute to the literature on corporate venture capital and sustainability by showing that companies spend from 10% to 15% of their capital in sustainable businesses in order to remain competitive.

Industry-relatedness, geographic proximity and strategic decisions of corporate and independent venture capital-backed companies

ABSTRACT In this paper, we use the essential dichotomy between independent venture capital (IVC) and corporate venture capital (CVC) to investigate the investment mechanisms that lead venture-backed companies to take different successful exit routes, that is, an initial public offering (IPO) or an acquisition. Through an analysis of a sample of 4206 US companies, we find that CVC-backed companies have a longer investment duration and a larger investment amount than IVC-backed companies. Our analysis reveals that geographic distance and industry-relatedness are influential for the success of the company. We show that industry-relatedness is more likely to lead to an acquisition exit while geographic proximity rather fosters IPO exits.

A Rewarding Ride? How CVC Experience Influences New Venture’s Dominant Design Establishment

New ventures often emerge based on disruptive technologies and enter dominance battles where one single technology among competing technological variants sponsored by different firms will become the dominant design (DD). The establishment of a technology as the DD is associated with enormous benefits to the sponsoring venture, but no study has explored factors that determine a new venture’s chance of success in establishing its technology as the DD. In this study, we examine the role of corporate venture capitalist (CVC) experience. We distinguished between CVC generic industry experience and CVC standard-setting experience, and found that CVC standard-setting experience has a larger impact (positive impact) than CVC generic industry experience (negative impact) in new ventures’ DD establishment. Further, we distinguished between two types of DD—DD based on end-user products and on intermediate technologies, and examined the moderating effect. Our study has important implications for the entrepreneurship literature, the DD literature, and the CVC literature.

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.

Is Your Knowledge Still Valuable? CVC Knowledge Obsolescence and Portfolio Firm Innovation

We examine the impact of a corporate venture capital (CVC) investor’s knowledge obsolescence on their portfolio firms’ innovation performance. We propose that a CVC investor’s knowledge obsolescence, defined as the degree of decline in the value or usefulness of a firm’s knowledge base, has a negative impact on their portfolio firms’ innovation performance as knowledge obsolescence increases the incentive of CVC investors to focus efforts on their own innovation rather than those of the portfolio firms. We also suggest that this effect would be weakened by the prior litigation experience of the CVC investor and the network prominence of the independent venture capital (IVC) that co-invests with the CVC investor. Using a sample of U.S. semiconductor ventures that received a CVC investment in 2006-2015, we find support for all of our predictions. Through this study, we bring in a temporal perspective on knowledge value and provide its implications on CVC investments and portfolio firms’ innovation performance.