Venture Capital Units Research Articles

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 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.

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.

How do bank-affiliated venture capitalists do deals? Towards a model of multiple investment logics

PurposeThis paper aims to investigate German bank-affiliated venture capitalists’ investment practices and the emergence of their investment logics. Most studies focus on the investment behaviour of independent venture capitalists and little is known about dependent venture capitalists’ investment behaviour. The present study contributes to filling this gap in entrepreneurial finance literature.Design/methodology/approachThe paper uses an exploratory qualitative research approach based on 27 semi-structured interviews with the top management of German bank-affiliated venture capitalists and industry experts to develop a conceptual model that explains the investment logics of bank-affiliated venture capitalists. A large amount of archival data has also been collected and used for the analysis.FindingsThe results indicate that bank-affiliated venture capitalists either follow an autonomous, contingent or hybrid investment logic. A bank-affiliated venture capitalist’s isomorphic focus – whether they feel isomorphic to the external venture capital environment or the internal parent bank’s environment – explains the emergence of multiple investment logics.Practical implicationsThe paper encourages banks to get a better understanding of how the venture capital industry works and what they need to do to compete again independent venture capitalists. Banks and their affiliated venture capital units can improve their deal flows by recognising that they need to get accepted as an on-par investor in the venture capital environment.Originality/valueThe current study is the first of its kind investigating multiple investment logics by focussing on the link between different isomorphic habits and the specific context of bank-affiliated venture capitalists.

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.

Don't throw in the towel too early! How agency conflicts affect the survival of corporate venture capital units

We empirically investigate the largely unexplored relationship between corporate top management teams (TMT) and CVC unit managers. Doing so, we provide new insights into the interplay between TMT decisions and CVC managers' behaviour and how agency conflicts between them influence the survival of CVC units. Using a proprietary dataset of 64 CVC units we apply fsQCA in order to identify the interrelatedness, causal asymmetry and equifinality of agency-related conditions leading to survival. We relativise former literature by demonstrating that financial incentivisation of CVC managers need to be complemented by additional factors to impact the survival of CVC units. Further, we conclude that the decision-making autonomy of CVC managers seem to work as a form of non-financial incentive. Finally, we demonstrate that the configuration of providing strategic support, investing with high strategic proximity, and non-autonomously acting CVC managers is related to non-survival of the CVC unit.

Don’t throw in the towel too early! How agency conflicts affect the survival of Corporate Venture Capital units

We empirically investigate the largely unexplored relationship between corporate top management teams (TMT) and CVC unit managers. Doing so, we provide new insights into the interplay between TMT decisions and CVC managers' behaviour and how agency conflicts between them influence the survival of CVC units. Using a proprietary dataset of 64 CVC units we apply fsQCA in order to identify the interrelatedness, causal asymmetry and equifinality of agency-related conditions leading to survival. We relativise former literature by demonstrating that financial incentivisation of CVC managers need to be complemented by additional factors to impact the survival of CVC units. Further, we conclude that the decision-making autonomy of CVC managers seem to work as a form of non-financial incentive. Finally, we demonstrate that the configuration of providing strategic support, investing with high strategic proximity, and non-autonomously acting CVC managers is related to non-survival of the CVC unit.

Search and Integration in External Venturing: An Inductive Examination of Corporate Venture Capital Units

Research summaryHow do external venturing units effectively achieve external knowledge search and integration of their initiatives with mainstream organizational units? We investigate this largely unexplored question through an inductive study of 17 corporate venture capital units. We document a set of five novel practices that influence the efficacy of a unit's external search and internal integration and identify how these practices complement a broader set of practices used by all units. We highlight the entrepreneurial nature of managing an external venturing unit, often to overcome unfavorable corporate contexts, a perspective that prior research has largely overlooked. Our findings provide unique insights into why some corporate investors are better at learning from external start‐ups than others.Managerial summaryExternal venturing involves strategic partnerships by established firms with entrepreneurial ventures. Top management usually tasks autonomous units with searching for willing and potentially valuable partners. These units must integrate their activities with the operations of parent firms to elicit cooperation from important business units. To understand how external venturing units implement search and integration in combination, we study corporate venture capital (CVC) units, which form external partnerships through minority investments in start‐ups. While all units adopted fundamental processes that are well established in the venture capital community, certain processes that are idiosyncratic to corporate investing helped units demonstrate superior performance in their strategic missions. These processes often required CVC unit managers to be entrepreneurial and politically savvy in building connections with relevant personnel in parent firms. Copyright © 2015 Strategic Management Society

"Social influence, learning, and the abandonment of corporate venture capital practices"

The adoption and diffusion of practices has been the subject of intense study, but much less is known about why firms abandon practices they had formerly adopted. Studies of practice abandonment have found that abandonment processes mirror adoption processes of mimesis and contagion, such that firms abandon previously adopted practices when their social referents do. However, unlike adoption decisions where organizations must rely on the experiences and behaviors of others, firms have their own direct experience to draw on when deciding to abandon previously adopted practices. We propose that the firm’s implementation and ongoing management of a practice influence its abandonment decision and also condition its response to contagion pressures for abandonment. We test our hypotheses using data on the abandonment of corporate venture capital units by a sample of information technology firms. Results suggest that firm’s utilization of a practice and staffing choices influence abandonment decisions. We furthe...

Venturing into new territory: Career experiences of corporate venture capital managers and practice variation

When organizations adopt new practices, the practices are often modified to fit the new context. We argue that managers who implement new practices modify them, and that the extent of practice variation is determined by two types of these managers' career experience: experience with the practice itself and experience that enables assessment of the fit between the practice and the adopting firm. We test these arguments by observing information technology firms' modification of venture capital practices in corporate venture capital units. This study contributes to diffusion research by developing and testing a framework for understanding the role of individuals in practice variation.

Venturing into New Territory: Career Experiences of Corporate Venture Capital Managers and Practice Variation

Venturing into New Territory: Career Experiences of Corporate Venture Capital Managers and Practice Variation

Corporate venture capital as a means of radical innovation: Relational fit, social capital, and knowledge transfer

Corporate venture capital as a means of radical innovation: Relational fit, social capital, and knowledge transfer

Energy Venture Capital Sector Sees Renewed Interest

As venture capitalists show renewed interest in start-ups, the energy sector is attracting particular notice. Concerns about U.S. reliance on oil imports and problems such as the recent blackout appear to have sparked new interest in energy ideas. In the fourth quarter of 2003, a half-dozen emerging technology companies in the energy sector received over $37 million in funding for projects in areas including hardware and software tools for managing and optimizing power consumption, solar power technologies, oil and natural gas exploration technologies, and wind power technologies. One cloud that currently hangs over the energy venture capital sector is the recent failure by Congress to pass sweeping energy legislation, which would have included tax credits to encourage the use of wind and solar power, government funded deployment and testing of photovoltaics, a requirement for states to establish “net metering” rules, and encouragement of universally available “time-of-use” metering for all customer classes. Despite the uncertainty of a comprehensive energy bill and a recent tendency of utilities to limit or close their own venture capital units, venture and growth capital investing in the energy technology sector continues to be one of the more attractive segments of private equity investing.