corporate venture capital research literature review and future directions

• Corporate Venture Capital Rese...
• More details

Corporate Venture Capital Research : Literature Review and Future Directions

• Report error
• EndNote - Citavi, Endnote, RefWorks, ...
• Zotero, Mendeley, RefWorks, ...

Why do incumbents fund startups? : a study of the antecedents of corporate venture capital in China

Dushnitsky, Gary, (2022)

Why Do Incumbents Fund Startups? A Study of the Antecedents of Corporate Venture Capital in China

China's Expanding Security Involvement in Africa : A Pillar for ‘China–Africa Community of Common Destiny’

Yu, Lei, (2018)

• Search Menu
• Sign in through your institution
• Browse content in Arts and Humanities
• Browse content in Archaeology
• Anglo-Saxon and Medieval Archaeology
• Archaeological Methodology and Techniques
• Archaeology by Region
• Archaeology of Religion
• Archaeology of Trade and Exchange
• Biblical Archaeology
• Contemporary and Public Archaeology
• Environmental Archaeology
• Historical Archaeology
• History and Theory of Archaeology
• Industrial Archaeology
• Landscape Archaeology
• Mortuary Archaeology
• Prehistoric Archaeology
• Underwater Archaeology
• Urban Archaeology
• Zooarchaeology
• Browse content in Architecture
• Architectural Structure and Design
• History of Architecture
• Residential and Domestic Buildings
• Theory of Architecture
• Browse content in Art
• Art Subjects and Themes
• History of Art
• Industrial and Commercial Art
• Theory of Art
• Biographical Studies
• Byzantine Studies
• Browse content in Classical Studies
• Classical History
• Classical Philosophy
• Classical Mythology
• Classical Numismatics
• Classical Literature
• Classical Reception
• Classical Art and Architecture
• Classical Oratory and Rhetoric
• Greek and Roman Papyrology
• Greek and Roman Epigraphy
• Greek and Roman Law
• Greek and Roman Archaeology
• Late Antiquity
• Religion in the Ancient World
• Social History
• Digital Humanities
• Browse content in History
• Colonialism and Imperialism
• Diplomatic History
• Environmental History
• Genealogy, Heraldry, Names, and Honours
• Genocide and Ethnic Cleansing
• Historical Geography
• History by Period
• History of Emotions
• History of Agriculture
• History of Education
• History of Gender and Sexuality
• Industrial History
• Intellectual History
• International History
• Labour History
• Legal and Constitutional History
• Local and Family History
• Maritime History
• Military History
• National Liberation and Post-Colonialism
• Oral History
• Political History
• Public History
• Regional and National History
• Revolutions and Rebellions
• Slavery and Abolition of Slavery
• Social and Cultural History
• Theory, Methods, and Historiography
• Urban History
• World History
• Browse content in Language Teaching and Learning
• Language Learning (Specific Skills)
• Language Teaching Theory and Methods
• Browse content in Linguistics
• Applied Linguistics
• Cognitive Linguistics
• Computational Linguistics
• Forensic Linguistics
• Grammar, Syntax and Morphology
• Historical and Diachronic Linguistics
• History of English
• Language Evolution
• Language Reference
• Language Acquisition
• Language Variation
• Language Families
• Lexicography
• Linguistic Anthropology
• Linguistic Theories
• Linguistic Typology
• Phonetics and Phonology
• Psycholinguistics
• Sociolinguistics
• Translation and Interpretation
• Writing Systems
• Browse content in Literature
• Bibliography
• Children's Literature Studies
• Literary Studies (Romanticism)
• Literary Studies (American)
• Literary Studies (Asian)
• Literary Studies (European)
• Literary Studies (Eco-criticism)
• Literary Studies (Modernism)
• Literary Studies - World
• Literary Studies (1500 to 1800)
• Literary Studies (19th Century)
• Literary Studies (20th Century onwards)
• Literary Studies (African American Literature)
• Literary Studies (British and Irish)
• Literary Studies (Early and Medieval)
• Literary Studies (Fiction, Novelists, and Prose Writers)
• Literary Studies (Gender Studies)
• Literary Studies (Graphic Novels)
• Literary Studies (History of the Book)
• Literary Studies (Plays and Playwrights)
• Literary Studies (Poetry and Poets)
• Literary Studies (Postcolonial Literature)
• Literary Studies (Queer Studies)
• Literary Studies (Science Fiction)
• Literary Studies (Travel Literature)
• Literary Studies (War Literature)
• Literary Studies (Women's Writing)
• Literary Theory and Cultural Studies
• Mythology and Folklore
• Shakespeare Studies and Criticism
• Browse content in Media Studies
• Browse content in Music
• Applied Music
• Dance and Music
• Ethics in Music
• Ethnomusicology
• Gender and Sexuality in Music
• Medicine and Music
• Music Cultures
• Music and Media
• Music and Religion
• Music and Culture
• Music Education and Pedagogy
• Music Theory and Analysis
• Musical Scores, Lyrics, and Libretti
• Musical Structures, Styles, and Techniques
• Musicology and Music History
• Performance Practice and Studies
• Race and Ethnicity in Music
• Sound Studies
• Browse content in Performing Arts
• Browse content in Philosophy
• Aesthetics and Philosophy of Art
• Epistemology
• Feminist Philosophy
• History of Western Philosophy
• Meta-Philosophy
• Metaphysics
• Moral Philosophy
• Non-Western Philosophy
• Philosophy of Language
• Philosophy of Mind
• Philosophy of Perception
• Philosophy of Science
• Philosophy of Action
• Philosophy of Law
• Philosophy of Religion
• Philosophy of Mathematics and Logic
• Practical Ethics
• Social and Political Philosophy
• Browse content in Religion
• Biblical Studies
• Christianity
• East Asian Religions
• History of Religion
• Judaism and Jewish Studies
• Qumran Studies
• Religion and Education
• Religion and Health
• Religion and Politics
• Religion and Science
• Religion and Law
• Religion and Art, Literature, and Music
• Religious Studies
• Browse content in Society and Culture
• Cookery, Food, and Drink
• Cultural Studies
• Customs and Traditions
• Ethical Issues and Debates
• Hobbies, Games, Arts and Crafts
• Natural world, Country Life, and Pets
• Popular Beliefs and Controversial Knowledge
• Sports and Outdoor Recreation
• Technology and Society
• Travel and Holiday
• Visual Culture
• Browse content in Law
• Arbitration
• Browse content in Company and Commercial Law
• Commercial Law
• Company Law
• Browse content in Comparative Law
• Systems of Law
• Competition Law
• Browse content in Constitutional and Administrative Law
• Government Powers
• Judicial Review
• Local Government Law
• Military and Defence Law
• Parliamentary and Legislative Practice
• Construction Law
• Contract Law
• Browse content in Criminal Law
• Criminal Procedure
• Criminal Evidence Law
• Sentencing and Punishment
• Employment and Labour Law
• Environment and Energy Law
• Browse content in Financial Law
• Banking Law
• Insolvency Law
• History of Law
• Human Rights and Immigration
• Intellectual Property Law
• Browse content in International Law
• Private International Law and Conflict of Laws
• Public International Law
• IT and Communications Law
• Jurisprudence and Philosophy of Law
• Law and Politics
• Law and Society
• Browse content in Legal System and Practice
• Courts and Procedure
• Legal Skills and Practice
• Legal System - Costs and Funding
• Primary Sources of Law
• Regulation of Legal Profession
• Medical and Healthcare Law
• Browse content in Policing
• Criminal Investigation and Detection
• Police and Security Services
• Police Procedure and Law
• Police Regional Planning
• Browse content in Property Law
• Personal Property Law
• Restitution
• Study and Revision
• Terrorism and National Security Law
• Browse content in Trusts Law
• Wills and Probate or Succession
• Browse content in Medicine and Health
• Browse content in Allied Health Professions
• Arts Therapies
• Clinical Science
• Dietetics and Nutrition
• Occupational Therapy
• Operating Department Practice
• Physiotherapy
• Radiography
• Speech and Language Therapy
• Browse content in Anaesthetics
• General Anaesthesia
• Clinical Neuroscience
• Browse content in Clinical Medicine
• Acute Medicine
• Cardiovascular Medicine
• Clinical Genetics
• Clinical Pharmacology and Therapeutics
• Dermatology
• Endocrinology and Diabetes
• Gastroenterology
• Genito-urinary Medicine
• Geriatric Medicine
• Infectious Diseases
• Medical Toxicology
• Medical Oncology
• Pain Medicine
• Palliative Medicine
• Rehabilitation Medicine
• Respiratory Medicine and Pulmonology
• Rheumatology
• Sleep Medicine
• Sports and Exercise Medicine
• Community Medical Services
• Critical Care
• Emergency Medicine
• Forensic Medicine
• Haematology
• History of Medicine
• Browse content in Medical Skills
• Clinical Skills
• Communication Skills
• Nursing Skills
• Surgical Skills
• Browse content in Medical Dentistry
• Oral and Maxillofacial Surgery
• Paediatric Dentistry
• Restorative Dentistry and Orthodontics
• Surgical Dentistry
• Medical Ethics
• Medical Statistics and Methodology
• Browse content in Neurology
• Clinical Neurophysiology
• Neuropathology
• Nursing Studies
• Browse content in Obstetrics and Gynaecology
• Gynaecology
• Occupational Medicine
• Ophthalmology
• Otolaryngology (ENT)
• Browse content in Paediatrics
• Neonatology
• Browse content in Pathology
• Chemical Pathology
• Clinical Cytogenetics and Molecular Genetics
• Histopathology
• Medical Microbiology and Virology
• Patient Education and Information
• Browse content in Pharmacology
• Psychopharmacology
• Browse content in Popular Health
• Caring for Others
• Complementary and Alternative Medicine
• Self-help and Personal Development
• Browse content in Preclinical Medicine
• Cell Biology
• Molecular Biology and Genetics
• Reproduction, Growth and Development
• Primary Care
• Professional Development in Medicine
• Browse content in Psychiatry
• Addiction Medicine
• Child and Adolescent Psychiatry
• Forensic Psychiatry
• Learning Disabilities
• Old Age Psychiatry
• Psychotherapy
• Browse content in Public Health and Epidemiology
• Epidemiology
• Public Health
• Browse content in Radiology
• Clinical Radiology
• Interventional Radiology
• Nuclear Medicine
• Radiation Oncology
• Reproductive Medicine
• Browse content in Surgery
• Cardiothoracic Surgery
• Gastro-intestinal and Colorectal Surgery
• General Surgery
• Neurosurgery
• Paediatric Surgery
• Peri-operative Care
• Plastic and Reconstructive Surgery
• Surgical Oncology
• Transplant Surgery
• Trauma and Orthopaedic Surgery
• Vascular Surgery
• Browse content in Science and Mathematics
• Browse content in Biological Sciences
• Aquatic Biology
• Biochemistry
• Bioinformatics and Computational Biology
• Developmental Biology
• Ecology and Conservation
• Evolutionary Biology
• Genetics and Genomics
• Microbiology
• Molecular and Cell Biology
• Natural History
• Plant Sciences and Forestry
• Research Methods in Life Sciences
• Structural Biology
• Systems Biology
• Zoology and Animal Sciences
• Browse content in Chemistry
• Analytical Chemistry
• Computational Chemistry
• Crystallography
• Environmental Chemistry
• Industrial Chemistry
• Inorganic Chemistry
• Materials Chemistry
• Medicinal Chemistry
• Mineralogy and Gems
• Organic Chemistry
• Physical Chemistry
• Polymer Chemistry
• Study and Communication Skills in Chemistry
• Theoretical Chemistry
• Browse content in Computer Science
• Artificial Intelligence
• Computer Architecture and Logic Design
• Game Studies
• Human-Computer Interaction
• Mathematical Theory of Computation
• Programming Languages
• Software Engineering
• Systems Analysis and Design
• Virtual Reality
• Browse content in Computing
• Business Applications
• Computer Security
• Computer Games
• Computer Networking and Communications
• Digital Lifestyle
• Graphical and Digital Media Applications
• Operating Systems
• Browse content in Earth Sciences and Geography
• Atmospheric Sciences
• Environmental Geography
• Geology and the Lithosphere
• Maps and Map-making
• Meteorology and Climatology
• Oceanography and Hydrology
• Palaeontology
• Physical Geography and Topography
• Regional Geography
• Soil Science
• Urban Geography
• Browse content in Engineering and Technology
• Agriculture and Farming
• Biological Engineering
• Civil Engineering, Surveying, and Building
• Electronics and Communications Engineering
• Energy Technology
• Engineering (General)
• Environmental Science, Engineering, and Technology
• History of Engineering and Technology
• Mechanical Engineering and Materials
• Technology of Industrial Chemistry
• Transport Technology and Trades
• Browse content in Environmental Science
• Applied Ecology (Environmental Science)
• Conservation of the Environment (Environmental Science)
• Environmental Sustainability
• Environmentalist Thought and Ideology (Environmental Science)
• Management of Land and Natural Resources (Environmental Science)
• Natural Disasters (Environmental Science)
• Nuclear Issues (Environmental Science)
• Pollution and Threats to the Environment (Environmental Science)
• Social Impact of Environmental Issues (Environmental Science)
• History of Science and Technology
• Browse content in Materials Science
• Ceramics and Glasses
• Composite Materials
• Metals, Alloying, and Corrosion
• Nanotechnology
• Browse content in Mathematics
• Applied Mathematics
• Biomathematics and Statistics
• History of Mathematics
• Mathematical Education
• Mathematical Finance
• Mathematical Analysis
• Numerical and Computational Mathematics
• Probability and Statistics
• Pure Mathematics
• Browse content in Neuroscience
• Cognition and Behavioural Neuroscience
• Development of the Nervous System
• Disorders of the Nervous System
• History of Neuroscience
• Invertebrate Neurobiology
• Molecular and Cellular Systems
• Neuroendocrinology and Autonomic Nervous System
• Neuroscientific Techniques
• Sensory and Motor Systems
• Browse content in Physics
• Astronomy and Astrophysics
• Atomic, Molecular, and Optical Physics
• Biological and Medical Physics
• Classical Mechanics
• Computational Physics
• Condensed Matter Physics
• Electromagnetism, Optics, and Acoustics
• History of Physics
• Mathematical and Statistical Physics
• Measurement Science
• Nuclear Physics
• Particles and Fields
• Plasma Physics
• Quantum Physics
• Relativity and Gravitation
• Semiconductor and Mesoscopic Physics
• Browse content in Psychology
• Affective Sciences
• Clinical Psychology
• Cognitive Psychology
• Cognitive Neuroscience
• Criminal and Forensic Psychology
• Developmental Psychology
• Educational Psychology
• Evolutionary Psychology
• Health Psychology
• History and Systems in Psychology
• Music Psychology
• Neuropsychology
• Organizational Psychology
• Psychological Assessment and Testing
• Psychology of Human-Technology Interaction
• Psychology Professional Development and Training
• Research Methods in Psychology
• Social Psychology
• Browse content in Social Sciences
• Browse content in Anthropology
• Anthropology of Religion
• Human Evolution
• Medical Anthropology
• Physical Anthropology
• Regional Anthropology
• Social and Cultural Anthropology
• Theory and Practice of Anthropology
• Browse content in Business and Management
• Business Ethics
• Business Strategy
• Business History
• Business and Technology
• Business and Government
• Business and the Environment
• Comparative Management
• Corporate Governance
• Corporate Social Responsibility
• Entrepreneurship
• Health Management
• Human Resource Management
• Industrial and Employment Relations
• Industry Studies
• Information and Communication Technologies
• International Business
• Knowledge Management
• Management and Management Techniques
• Operations Management
• Organizational Theory and Behaviour
• Pensions and Pension Management
• Public and Nonprofit Management
• Social Issues in Business and Management
• Strategic Management
• Supply Chain Management
• Browse content in Criminology and Criminal Justice
• Criminal Justice
• Criminology
• Forms of Crime
• International and Comparative Criminology
• Youth Violence and Juvenile Justice
• Development Studies
• Browse content in Economics
• Agricultural, Environmental, and Natural Resource Economics
• Asian Economics
• Behavioural Finance
• Behavioural Economics and Neuroeconomics
• Econometrics and Mathematical Economics
• Economic History
• Economic Systems
• Economic Methodology
• Economic Development and Growth
• Financial Markets
• Financial Institutions and Services
• General Economics and Teaching
• Health, Education, and Welfare
• History of Economic Thought
• International Economics
• Labour and Demographic Economics
• Law and Economics
• Macroeconomics and Monetary Economics
• Microeconomics
• Public Economics
• Urban, Rural, and Regional Economics
• Welfare Economics
• Browse content in Education
• Adult Education and Continuous Learning
• Care and Counselling of Students
• Early Childhood and Elementary Education
• Educational Equipment and Technology
• Educational Research Methodology
• Educational Strategies and Policy
• Higher and Further Education
• Organization and Management of Education
• Philosophy and Theory of Education
• Schools Studies
• Secondary Education
• Teaching of a Specific Subject
• Teaching of Specific Groups and Special Educational Needs
• Teaching Skills and Techniques
• Browse content in Environment
• Applied Ecology (Social Science)
• Climate Change
• Conservation of the Environment (Social Science)
• Environmentalist Thought and Ideology (Social Science)
• Management of Land and Natural Resources (Social Science)
• Natural Disasters (Environment)
• Pollution and Threats to the Environment (Social Science)
• Social Impact of Environmental Issues (Social Science)
• Sustainability
• Browse content in Human Geography
• Cultural Geography
• Economic Geography
• Political Geography
• Browse content in Interdisciplinary Studies
• Communication Studies
• Museums, Libraries, and Information Sciences
• Browse content in Politics
• African Politics
• Asian Politics
• Chinese Politics
• Comparative Politics
• Conflict Politics
• Elections and Electoral Studies
• Environmental Politics
• Ethnic Politics
• European Union
• Foreign Policy
• Gender and Politics
• Human Rights and Politics
• Indian Politics
• International Relations
• International Organization (Politics)
• International Political Economy
• Irish Politics
• Latin American Politics
• Middle Eastern Politics
• Political Behaviour
• Political Economy
• Political Institutions
• Political Methodology
• Political Communication
• Political Philosophy
• Political Sociology
• Political Theory
• Politics and Religion
• Politics and Law
• Politics of Development
• Public Policy
• Public Administration
• Qualitative Political Methodology
• Quantitative Political Methodology
• Regional Political Studies
• Russian Politics
• Security Studies
• State and Local Government
• UK Politics
• US Politics
• Browse content in Regional and Area Studies
• African Studies
• Asian Studies
• East Asian Studies
• Japanese Studies
• Latin American Studies
• Middle Eastern Studies
• Native American Studies
• Scottish Studies
• Browse content in Research and Information
• Research Methods
• Browse content in Social Work
• Addictions and Substance Misuse
• Adoption and Fostering
• Care of the Elderly
• Child and Adolescent Social Work
• Couple and Family Social Work
• Direct Practice and Clinical Social Work
• Emergency Services
• Human Behaviour and the Social Environment
• International and Global Issues in Social Work
• Mental and Behavioural Health
• Social Justice and Human Rights
• Social Policy and Advocacy
• Social Work and Crime and Justice
• Social Work Macro Practice
• Social Work Practice Settings
• Social Work Research and Evidence-based Practice
• Welfare and Benefit Systems
• Browse content in Sociology
• Childhood Studies
• Community Development
• Comparative and Historical Sociology
• Disability Studies
• Economic Sociology
• Gender and Sexuality
• Gerontology and Ageing
• Health, Illness, and Medicine
• Marriage and the Family
• Migration Studies
• Occupations, Professions, and Work
• Organizations
• Population and Demography
• Race and Ethnicity
• Social Theory
• Social Movements and Social Change
• Social Research and Statistics
• Social Stratification, Inequality, and Mobility
• Sociology of Religion
• Sociology of Education
• Sport and Leisure
• Urban and Rural Studies
• Browse content in Warfare and Defence
• Defence Strategy, Planning, and Research
• Land Forces and Warfare
• Military Administration
• Military Life and Institutions
• Naval Forces and Warfare
• Other Warfare and Defence Issues
• Peace Studies and Conflict Resolution
• Weapons and Equipment

• < Previous chapter
• Next chapter >

15 Corporate Venture Capital: Past Evidence and Future Directions

Gary Dushnitsky is Assistant Professor of Management at the Wharton School, University of Pennsylvania. His research focuses on the economics of entrepreneurship and innovation, exploring the conditions under which established corporations succeed, or fail, to partner with innovative startups, and the implication to corporate innovativeness. He is the recipient the Heizer Award for the best dissertation by the Entrepreneurship division of the Academy of Management, the Best Dissertation Award by the Technology, and Innovation Management division of the Academy of Management, as well as the Herman Krooss Award for Outstanding Dissertation (Stern School of Business, NYU). His papers received a number of awards including the McKinsey Paper Prize (Honorable Mention) at the Strategic Management Society.

• Published: 02 September 2009
• Cite Icon Cite
• Permissions Icon Permissions

This article reviews the academic literature on corporate venture capital, that is, minority equity investments by established corporations in privately-held entrepreneurial ventures. It starts with a detailed definition of the phenomenon. An historical background of Corporate Venture Capital (CVC) is presented, followed by an extensive review of CVC investment patterns. The article then presents scholarly findings beginning with firms' objectives, through the governance of their CVC programmes and the relationships with the portfolio companies and ending with a review of corporate, venture and CVC programme performance. The article concludes with directions for future research.

15.1 Introduction

In May 1999, an entrepreneurial provider of wireless multimedia software for mobile applications, PacketVideo, received a financing round of $4m from an investment syndicate consisting of Intel Corporation and two venture capital funds. At the time of the investment, the market capitalization of the semiconductor incumbent was about 1.25 million times bigger than the post-round valuation of the year-old venture it financed. This observation raises a number of questions. What is the magnitude of corporate venture capital investments? Why do industry incumbents pursue equity investments in small entrepreneurial ventures? And when will entrepreneurs seek corporate backing? The answers to these questions can advance our understanding of entrepreneurial success, corporate innovativeness and economic growth.

This chapter reviews the academic literature on corporate venture capital, that is minority equity investments by established corporations in privately-held entrepreneurial ventures. We start with a detailed definition of the phenomenon. An historical background of Corporate Venture Capital (CVC) is presented, followed by an extensive review of CVC investment patterns. We then present scholarly findings beginning with firms' objectives, through the governance of their CVC programmes and the relationships with the portfolio companies and ending with a review of corporate, venture and CVC programme performance. The chapter concludes with directions for future research.

15.2 Definition

For the purpose of this chapter, CVC is defined as a minority equity investment by an established corporation in a privately-held entrepreneurial venture. Three factors are common to all CVC investments. First, while financial returns are an important consideration, there are often strategic objectives that motivate CVC activities. Second, the funded ventures are privately held considerations and are independent (legally and otherwise) from the investing corporation. Third, the investing firm receives a minority equity stake in the venture. Later, I highlight the main terms in the corporate venture capital literature. A brief discussion of corporate actions that do not fall within the above definition follows.

Three decades and a similar number of CVC waves have left the field with many, often overlapping, terms. To avoid confusion, Figure 15.1 summarizes the terminology used in this chapter. In doing so, I build on the terminology of recent work by Block and MacMillan ( 1993 ), Chesbrough ( 2002 ), Gompers and Lerner ( 1998 ), and Maula ( 2001 ). The main players include the Parent Corporation (e.g. Motorola) that launches a Corporate Venture Capital Program (e.g. Motorola Ventures), which in turn invests in Entrepreneurial Ventures (e.g. Cedar Point Communications, E-Ink, and IceFyre Semiconductor, Inc.). Scholars investigate the activities in which these players engage, focusing mainly on Governance and Investment Relationship . The former refers to the relationship between a parent corporation and its CVC programme (e.g. the relationship between Motorola and Motorola Ventures). Study topics include the organizational structure of the CVC program, CVC objectives, the compensation scheme, and so forth. The investment relationships between a CVC programmes and its portfolio companies (e.g. Motorola Ventures and E-Ink) are characterized by a certain level of fit. The issues that fall under this rubric include the monetary and non-pecuniary support provided by the corporation, the knowledge and information that flows back from the venture as well as the level of relatedness between the products, services or technologies of the two.

The practice of corporate venture capital should not be confused with other corporate activities that are aimed at enhancing firm innovativeness, growing revenues, or increasing profits. The definition excludes: (i) non-equity-based inter-organizational relationships; (ii) other equity-based forms of inter-organizational relationships (e.g. joint ventures or investments in public companies); (iii) internal corporate venturing; and (iv) spin-outs (i.e. independent businesses started by departing employees). In addition, investments by financial firms aimed solely at diversifying their financial portfolios, as well as investments by independent VC funds, are not a part of CVC activities.

Corporate venture capital: Terminology

While often used synonymously, the term ‘corporate venture capital’ differs from either ‘corporate venturing’ or ‘corporate spawning’. The latter is associated with the study of corporate spin-outs, when an individual leaves his or her employer and opens a related business (e.g. Klepper, 2001 ; Gompers et al., 2004 ). It focuses on employees who walk away from corporate positions in order to start their own businesses (i.e. corporate outflow), whereas CVC is interested in harnessing entrepreneurial knowledge or products (i.e. corporate inflow). The term ‘corporate venturing’ (also known as ‘corporate entrepreneurship’ or ‘corporate intrapreneurship’) addresses different activities, including investment in internal corporate divisions, business development funds, and so on (for a review see Guth and Ginsberg, 1990 ; Thornhill and Amit, 2001 ). The origin of the entrepreneurial team differs between the two: corporate employees are being funded by corporate venturing initiatives, whereas corporate venture capital commonly targets entrepreneurs with no prior relationship to the corporation. Another key distinction is the fact that both the CVC investor and the entrepreneurial venture are participating in the market for entrepreneurial financing, along with independent VCs and angel investors. In the case of corporate venturing, however, employees are provided with corporate funds and do not consider competing sources of capital. Finally, it is important to note that a few CVC programmes have been mandated by their parent corporation to engage in venturing activity, in addition to venture capital investment.

15.3 Historical background

Historically, corporate venture capital investment has been highly cyclical. To date, we have witnessed three waves of corporate venture capital. As a collective, established corporations are regarded as an important source of funding in the markets for entrepreneurial financing. They are second only to independent venture capital funds in dollar amount invested, and lead other investor groups such as angels and Small Business Investment Corporations (Prowse, 1998 ; Timmons, 1994 ).

The first wave of corporate venture capital started in the mid-1960s. Three factors are associated with the substantial increase in corporate funding for new ventures at that time. The overall corporate diversification trend of the 1960s, combined with excess cash flow experienced by many of the investing firms constitute two of the main factors (Fast, 1978 ). The financial success of pioneering independent venture capital funds and the stellar performance of their portfolio companies constitute the third driving factor (Gompers and Lerner, 1998 ). 1 About one-fourth of Fortune 500 firms experienced venturing programmes during that period, including such firms as American Standard, Boeing, Dow, Exxon, Heinz, Monsanto, and W. R. Grace.

These early programmes invested in either external start-ups, employee-based ventures or both. Externally focused programmes funded start-ups with the goal of addressing or extending corporate needs. They pursued venture capital investments either directly (e.g. GE's Business Development Services) or indirectly through independent venture capital funds (Gompers, 2002 ). A few firms attempted to reinvent their business by encouraging employees, mostly those in technical roles, to start new ventures. These efforts were supported by parent corporations (e.g. DuPont's Development Department and Purina's New Venture Division), which provided funding as well as non-monetary support (Gompers, 2002 ). During these early days, many CVC programmes invested in external as well as internal ventures. For example, Exxon Enterprises, an affiliate of Exxon Corporation, initiated and funded some 37 high technology ventures during the 1970s. About half of these ventures were internally grown ventures, while the other half were external ventures (Sykes, 1986 ).

The first wave ended in the early 1970s. The attractiveness of venture capital investment decreased dramatically with the collapse of the market for IPO in 1973. Many independent funds suffered lower returns and difficulties in raising new funds (Gompers and Lerner, 1998 ). Macroeconomic changes and the oil shock of the time meant that many of the investing corporations no longer experienced excess cash flows, thus drying off available resources for investment. Finally, frictions within the CVC programmes and between the programmes and their parent corporations resulted in inferior financial and strategic performance, ultimately leading to the termination of CVC efforts.

The second wave took place in the first half of the 1980s. Changes in legislation, significant growth in technology-driven commercial opportunities, and favourable public markets stimulated the venture capital market as a whole. 2 Again, many leading firms in the chemical and metal industries launched CVC programmes. Technology firms (e.g. Analog Devices, Control Data Systems, and Hewlett-Packard) and pharmaceutical companies (e.g. Johnson & Johnson) also initiated new venture financing efforts during that time. The market crash of 1987 led to a sharp decline in independent, as well as CVC investments.

The third wave took place during the 1990s. The period was characterized by technological advancement, explosion in internet-related new venture creation, and a surge in venture capital investing. The number of CVC programmes has soared to more than 400. Diverse multinational corporations such as News Corp. (E-Partners), Smith Kline Beecham (S. R. One), Texas Instrument (TI Ventures), Dell (Dell Ventures), and Novell (Novell Ventures) established CVC funds. A handful of corporations such as Intel created multiple funds. Inflation-adjusted CVC investment levels during this time far exceeded previous waves. By the year 2000, established corporations have become important players in the venture capital industry participating in rounds well in excess of US$16 billion, approximately 15 percent of all venture capital investment. This marked a sharp incline from the meagre US$0.5 billion invested by corporations in 1996 (Venture Economics).

As with previous waves, a crisis in the public markets has driven many corporations to fold their venturing activities. Yet, a number of leading corporations remain committed to CVC investment even during the current period of sharp declines and significant financial losses (Chesbrough, 2002 ). A testament to the increased role of CVC is the fact that dozens of firms have joined the Corporate Venture Group within the National Venture Capital Association (NVCA) since late 2003. Moreover, CVC investment remains well above historical levels despite the downturn in the market for venture capital.

To conclude, the historical overview highlights three key drivers of corporate venture capital activity. At the macro level, the emergence of novel technologies is an important precursor to CVC investment. Established firms often leveraged their CVC programmes to identify, learn, and invest in attractive technologies. The financial markets played a key role as well. Not only did they serve as catalysts for entrepreneurial activity to begin with, but also they facilitated the transformation of technological advancement and commercial power into high financial returns. Further research is warranted to establish whether corporations can, or should, mimic successful venture capital funds, yet it is undeniable that CVC activity has closely paralleled the expansions and contractions of the financial markets in general, and the venture capital market in particular. At the firm level, we observe that CVC investment is undertaken predominantly by incumbent firms. Whether it is agency considerations or value creation that drive firms' behaviour is unclear. Consistent with the former, early CVC waves involved established firms that operate in stable industries and enjoy significant free cash flows. During later waves however, CVC was pursued mainly by incumbents in turbulent industries potentially as a response to Schumpeterian competition.

15.4 Investment patterns

This section provides an overview of the main patterns in CVC activity. It focuses on various facets of established firms' investment, including industry affiliation and geographic location, dollar amount invested, and ventures' characteristics. A brief comparison between CVC and independent VC investment patterns is presented. Data on investment activity is drawn from Venture Economics VentureXpert database. Venture Economics collects data through multiple sources including the investment banking community, surveys of general partners and their portfolio companies, government filings and industry associations (European Venture Capital Association, National Venture Capital Association, etc.). Venture Economics representatives often contact investors and companies to verify and supplement their records. Previous academic studies on the venture capital industry have used the Venture Economics database (Bygrave 1989 ; Gompers, 1995 and 2002 ; Gompers and Lerner, 1998 ; Sorenson and Stuart, 2001 ). Because each investment generates a unique record in the database, the data contain the full history of investors' investments in each venture. While the data is not without limitations, it is among the most comprehensive record of private equity activities in general, and venture capital investments in particular.

Figures 15.2a and b (Panels A, B) presents a summary of total annual investment in new ventures by corporations and independent venture capital funds during the period 1969 to 2003. The amounts represent dollar volume of rounds and are adjusted to 2003 dollars. 3 We observe that CVC activity has gone through three waves in the last 30 years. The first wave peaked in the early seventies. Activity declined until approximately 1978, when changes in legislation led to an increase in venturing investments by independent venture capitalists as well as established firms. This second wave peaked around 1986 with total annual investment at approximately US$750 million. Investment levels declined sharply after the stock crash of 1987 to a level of US$130 million in 1993. The third wave began with the rise of the Internet in the mid-nineties. At its peak in the year 2000, the dollar volume of rounds in which corporate investors participated exceeded US$18 billion, about 15 percent of all venture capital investments that year.

Panel A: Annual IVC and CVC investments (1969–96) (CPI-adj)

Panel B: Annual IVC and CVC investments (1969–2003) (CPI-adj)

Panel C: Annual CVC activity by sectors (1969–97)

Table 15.1 presents a summary of the investment activity of the 20 largest venturing firms in our sample in terms of total cumulative round volume. Intel leads the list with total investments approaching US$1.5 billion since 1992. The top-20 list is dominated by the largest electronics and computer concerns such as Microsoft, Sony, Motorola, AOL, and Dell. Johnson & Johnson is the first pharmaceutical firm to appear in the list at the 13th position with cumulative investments approximating US$196 million. The majority of these firms have started their corporate venturing funds after 1993. A few have been engaged in corporate venturing since the sixties including Xerox, Johnson & Johnson, and Motorola. A handful of firms including Intel, Sony, and Xerox operate a number of funds with which they invest in new ventures.

Note : a in US$ millions.

Figure 15.2c (Panel C) presents a summary of total annual corporate venture capital activity by sectors during the period 1969–97. 4 Consistent with Table 15.1 , we observe that firms in the information technology sectors and the pharmaceutical industry actively engage in corporate venture capital. The chemical industry and the metals industry had lively CVC investment during the 1980s that was not matched during the CVC wave of the 1990s. We may speculate that much of the run-up in CVC investment in the late 1990s was driven by the Internet. For example, starting in 1995, the publishing industry experienced a surge in CVC activity which was mainly a result of established media moguls such as News Corp. investing in Internet start-ups that provided news and other information online.

Detailed analysis of the last CVC wave finds substantial cross-sector variation in firms' investment behaviour. Some firms invest in ventures that operate in their own sector while others invest in neighbouring sectors, report Dushnitsky and Lenox ( 2005a ) based on a large panel of US public firms during the period 1990–99. For example, nearly 50 percent of all CVC investment by chemical and pharmaceutical companies went into ventures within those sectors, while only 18 percent of all CVC investment by semiconductor firms went into semiconductor ventures. The authors attribute these patterns to firm-level, and venture's industry-level (as opposed to firm's industry) factors. The likelihood of investing CVC increases in industries with rich technological opportunities (e.g. up to 93% of the annual amount of CVC is channelled into industries that experience the highest levels of patenting), weak intellectual property protection, and where complementary capabilities are important to appropriate the returns to innovation. Corporate cash flow is also found to be significantly and positively associated with a firm's CVC behaviour. Finally, the greater the firm's absorptive capacity, the more it invests corporate venture capital.

Figures 15.3a to c present a breakdown of global CVC activities by country for the period 1990–99. According to Venture Economics, the majority (approximately 71%) of CVC-investing firms are based in the United States (Panel A). Asian and European firms are also among the leading CVC investors, particularly those in Japan (e.g. Sony, Mitsubishi and Sumitomo), United Kingdom (e.g. Reuters, Reed Elsevier and News Corp.), Germany, South Korea, and France. The figure may downplay the role of these firms, as many of them are coded as US-based though the parent corporation is not headquartered in the United States (e.g. Panasonic Ventures or Mitsui & Co. Venture Partners). As for venture's country affiliation, we find, not surprisingly, that US-based ventures constitute about 75 percent of all CVC-backed ventures (Panel B). Other CVC-backed ventures tend to operate in countries with substantial CVC headquarters, with Israel being the only exception. Again, the data may over-emphasize the role of US-based ventures. Recent surveys suggest that the weight of American ventures is lower, and stands at 61 percent (Birkinshaw, Murray and van Basten-Batenburg, 2002 ), or even as little as 38 percent (Ernst & Young, 2002 ). These surveys cover a small number of globally leading corporate investors and thus may not represent the geographical distribution of the population of corporate funds. Finally, the fact that corporate venture capital, in aggregate, tends to originate and reach the same countries does not necessarily mean that funds invest domestically. As we discuss below, CVC is used at times to access foreign technologies or learn about and enter geographically distant markets.

A closer investigation reveals that while the identity of CVC-originating and CVC-receiving countries greatly overlaps, the level of CVC inflows and outflows correlates to a lesser extent. The differences may be explained by cross-country variation in national innovative capacity. At the national level, innovative activity is often associated with the existence of technological capabilities, a strong legal regime, an effective capital market, and competitive product markets (Jeng and Wells, 2000 ; Furman, Porter and Stern, 2002 ). Consistent with previous research, countries with greater technological capabilities, larger capital markets and stronger legal protection have a larger number of CVC-backed ventures. However, the number of CVC investors in a country is mainly associated with the presence of an effective financial market, and to a lesser extent with its technological advancement. 5 Both the number of ventures and CVC investors increase in a country's gross domestic product (GDP), yet they are not correlated with national-level measure of competition. These observations should be taken with caution due to data limitation, measure validity, and the fact that they represent simple pair-wise correlations. Nonetheless, they highlight contextual differences in the factors that stimulate entrepreneurs and CVC activities.

Corporate investors and independent venture capital funds often exhibit different investment practices. One dimension on which they differ is the stage of investment. Figure 15.4a (Panel A) illustrates that mature ventures constitute a higher fraction of established firms' portfolios in the period 1990–2003, compared to independent VCs' portfolios. Start-up stage ventures, defined as companies still undergoing R&D and with no commercial operations, are more than 10 percent of independent VC portfolios, but less than 5 percent of that of CVC investors. 6 These patterns are consistent with the analysis of Gompers and Lerner ( 1998 ) of CVC and IVC investments between 1983 and 1994. Interestingly, Dushnitsky ( 2004 ) reports that this disparity cannot be explained by investors' stage-preferences, as declared and documented in Venture Economics and the Directory of Corporate Venturing. Most CVC programmes pursue a balanced strategy investing in both early- and late-stage ventures, and among the remaining programmes the number of those focused on late stage financing is equal to that interested solely in early-stage ventures.

Panel A: CVC investments by corporate location (1990–2003)

Panel B: CVC investments by nation (1990–2003)

Panel A: CVC and IVC investment patterns by venture stage for 1990–2003

Shifting from the stated preferences to the actual investment patterns, we observe that as the market for venture capital grew over the last decade, corporate funding of later stage ventures grew more rapidly (Figure 15.4b , Panel B). The figure tracks the evolution of CVC investment by stage, pegging 1990 investment level as the origin point. It demonstrates that the explosion in expansion and late-stage activity was met by a substantial, yet smaller, increase in corporate funding for start-up and early-stage ventures.

Panel B: Relative CVC investment by venture stage 1990–2003

Panel A: Syndicate size by venture stage (1990–99)

Combined, the evidence reviewed in the two paragraphs above suggest that in the face of ‘willing’ corporate investors, young entrepreneurial ventures may be less inclined to seek corporate backing while mature ventures are more interested in doing so. Interestingly, an early-stage round is more likely than a start-up stage round to involve a firm and a venture operating in a related industry. However, later stage rounds (e.g. expansion, or later) are less likely to have a firm-venture pair in the same industry, in comparison to start-up stage rounds (Gompers, 2002 ).

The two investor groups also differ in their syndicate size. Figures 15.5a and b show that the average syndicate size is significantly larger when one of the investors is a corporate venture capitalist. The larger syndicate membership is not merely a feature of greater CVC involvement in later stage rounds. It is clear that corporate investors' participation is associated with higher average syndicate size, irrespective of the round in which investment is taking place (Panel A). Moreover, the observation is not a mere artifact of heterogeneity in the valuation of ventures. We define ten strata, such that in each stratum, IVC-backed and CVC-backed ventures received similar round valuations. Within each stratum, we continue to observe that syndicates involving corporate investors exhibit higher membership size (Panel B).

Panel B: Syndicate size by round valuation (1990–99)

15.5 The corporate venture capital literature

This section summarizes the academic work on corporate venture capital. Building on more than 15 years of scholarly work, we present evidence on the key characteristics of CVC programmes, their parent corporations, their portfolio companies and the relationships between them. The performance implications are discussed next. Figure 15.6 summarizes the topics.

A caveat is warranted here, however. Much of the existing literature relies on case studies or descriptive surveys. The generalizability of any one study may be limited due to the small number of companies being covered and the cross-sectional nature of the sample. 7 A number of important causal factors such as firm size or industry choice are often not controlled for. Other important issues, such as unobserved heterogeneity and temporal precedence, cannot be addressed using cross-sectional samples. Therefore, when interpreting the results given in the table below, the reader should be cognizant of the context from which they were drawn. To that end, Table 15.2 summarizes the main properties of the major CVC surveys.

Corporate venture capital: Performance

Notes : NR — not relevant. NA — not available

a Survey sent to Fortune 500 companies, implying only US-based firms were included.

b Independent VC firms that raised money and managed a fund for a non-financial corporation.

c Initially 109 firms were identified and 73 responded (67%), but only 28 (i.e. 26%) engaged in CVC.

d Among the respondents, 19 were UK firms and 9 foreign subsidiaries operating in the UK.

e Maula identified 856 CVC-backed ventures of which only 810 had continued operations. There were 135 respondents (17%), and lack of information on CVC investors, as well as not meeting various criteria, further dropped the sample to 91.

f Professor Thomas Helmann was the academic representative on the advisory board.

g Birkinshaw et al. identified 447 CVC units of which only 327 were still active—95 (29%) responded.

15.6 Investors' objectives

The motivation for firms' corporate venture capital is the subject of substantial study. Independent Venture Capital funds invest in early- and late-stage business endeavours with the sole purpose of capital appreciation through lucrative exits (usually via an Initial Public Offering or a trade sale). Why do established corporations choose to invest in young ventures? The literature suggests some firms pursue CVC to secure financial gains, while others seek strategic benefits. Yet, others pursue both (Block and MacMillan, 1993 ; Chesbrough, 2002 ).

In the first comprehensive survey of CVC practices, Siegel, Siegel and MacMillan ( 1988 ) find that CVC programmes rank ‘Return on Investment’ as the most important objective. The authors assert caution in interpreting this result because almost 42 percent of the respondents ranked financial returns as less than essential, while emphasizing various strategic objectives. Combined with the fact that many programmes seek financial returns along with strategic objectives, this implies that CVC is not solely a financial exercise. Among the strategic benefits, ‘Exposure to New Technologies and Markets’ was ranked significantly higher than any other strategic objective. Other objectives, by order of importance, were ‘Potential to Manufacture or Market New Products’, ‘Potential to acquire Companies’, and ‘Potential to Improve Manufacturing Processes’.

Winters and Murfin ( 1988 ) point at international business opportunities and expansion of corporate contacts as additional strategic benefits. Corporate venture capital offers multinational firms with ‘International Business Opportunities’, specifically the opportunity to license entrepreneurial venture's technologies or products and market them overseas. The authors further stipulate that CVC activity expands a firm's ‘contacts’ beyond its common network, thus opening it to many new business opportunities. Finally, the authors are skeptical of CVC role in facilitating acquisitions. Not only can a corporation seek acquisition targets independently of its venture capital activities, but also ‘There are no cheap acquisitions to be obtained by this venture capital involvement since professional venture capital investors always seek the maximum financial returns for their early-stage investment.’

Sykes ( 1990 ) conducts a survey of strategically driven corporate venture capitalists. He reports ‘Identify New Opportunities’ and ‘Develop Business Relationships’ top the list of strategic objectives. Other objectives, by order of importance, are ‘Find Potential Acquisitions’, ‘Learn How to do Venture Capital’, and ‘Change Corporate Culture’. The lowest ranking objective, as reported by the 31 firms that responded to the survey, is ‘Assist Spin-Outs from the Corporation’.

McNally ( 1997 ) sheds light on the objectives of corporate venture capitalists in the United Kingdom. Only 36 percent of the firms in his sample cite financial returns as the primary reason for their investment activity. However, ‘Financial Return on Investment’ is a prominent goal when considering either primary or secondary CVC objectives. As with US-based programmes, ‘Identification of New Markets’ is the top strategic objective (68%). Other primary strategic objectives include ‘Exposure to New Technologies’ (43%), ‘Develop Business Relationships’ (38%), ‘Identification of New Products’ (38%), and ‘Assess Potential Acquisition Candidates’ (21%). 8 The study offers a unique perspective into the decisions of firms that considered, but did not pursue, corporate venture capital. McNally's survey covers 73 firms, of which 45 did not invest in new ventures but partially considered doing so. 9 The most common motivation for contemplating such activity among the non-investors was to gain a window on technology. This finding holds, irrespective of whether the firms considered investing directly or through independent VC funds. The decision not to pursue CVC was motivated either by the lack of corporate resources (i.e. capital and managerial time; see also Dushnitsky and Lenox, 2005b ), or by the preference towards more conventional mechanisms for knowledge acquisition (i.e. internal R&D or acquisitions) that offer greater control.

A more recent account of CVC objectives is presented by Kann ( 2000 ). 10 Focusing solely on programmes with a strategic objective, she reports that ‘External R&D’ is the most common objective (45%), followed by ‘Accelerated Market Entry’ (30%), and ‘Demand Enhancement’ (24%). Kann ( 2000 ) defines these objectives as follows: ‘External R&D’ programmes seek to increase internal R&D capabilities through entrepreneurial technologies, with the ultimate goal of filling gaps in corporate technological portfolios or enhancing awareness to strategic blindspots. Firms threatened by rapid changes to their core businesses often pursue ‘Accelerated Market Entry’ in an attempt to leverage entrepreneurial technologies and reinvent themselves. Finally, some programmes pursue a ‘Demand Enhancement’ strategy by sponsoring ventures with complementary technologies, products, or services. 11

Two surveys target the CVC population post-2000 market decline. The first, conducted by Ernst & Young ( 2002 ), includes 40 global leaders that engage in venture capital investments. A total of 56 percent of the respondents state strategically driven activity, 33 percent declare financially driven investment, and 11 percent claim to pursue both. That being said, the report notes that ‘most strategic investors would argue that a sound strategic investment is likely to produce sound financial returns ….’ Again, ‘Window on Technology Developments’ is ranked as the leading strategic objective. Other goals, by ranking, include ‘Importing/Enhancing Innovation with Existing Business Units’, ‘Leveraging Internal Technological Developments’, ‘Tapping into Foreign Market’, and ‘Corporate Diversification’.

Birkinshaw et al. ( 2002 ) survey 95 CVC programmes from around the world. More than half of the programmes are affiliated with European firms, and the remainder are mainly North American corporations. ‘Learning and Developing Strategic Relationships’ tops the list, with ‘Increasing Demand for our Products and Services’ in second place. Other reasons, such as ‘Investing in External Start-ups for Financial Returns’, and ‘Development of Internal Business’ were ranked much lower. However, the ranking conceals heterogeneity in CVC objectives. The authors analyze response patterns and identify four clusters, each associated with a different objective. Based on their cluster analysis, they conclude that 32 percent of the programmes invest in external start-ups in order to gain high financial returns, and 31 percent pursue a strategic window on technology. The remaining 37 percent invest primarily in internal ventures, rather than external startups. Some seek to cultivate internal growth (26%), while others aim to leverage corporate intellectual property and spin out businesses (11%).

To conclude, established firms pursue investment in new ventures for various reasons. Some firms seek to cash-in on their incumbent industry position and enjoy high financial returns. Their goal is capital appreciation through lucrative exits, such as an IPO or a trade sale of their portfolio companies. Most firms pursue CVC for a variety of strategic objectives. Perhaps the most common objective is the pursuit of novel technologies that are relevant to core corporate activities, often referred to as ‘Window on Technology’ (also ‘External R&D’ or even ‘Potential to Improve Manufacturing Processes’). In the same way, spotting potential acquisition candidates is an oft-cited objective. Another common CVC objective is the development of strategic relationships, most often with the intent of learning or engaging new markets. Recent surveys indicate that investment in ventures with the intent to create demand for corporate products or services is an alternative role of corporate venture capital. Less common is the view of CVC investment as an opportunity to enter foreign markets (e.g. ‘International Business Opportunities,’ or ‘Tapping into Foreign Markets’). Similarly, a few firms point at ‘Exposure to Entrepreneurial Spirit’ and an effort to ‘Change Corporate Culture’ as an important, yet not primary, objective.

In an attempt to understand the motivation behind CVC investment, the literature proposes a number of typologies of CVC objectives (e.g. Siegel et al., 1988 ; Chesbrough, 2002 ). However, these typologies bundle CVC objectives along with at least one other facet of CVC operations (e.g. structure). We propose a different classification of the seven strategic objectives mentioned above. Our typology is guided solely by CVC objectives, specifically the intended effect of a venture's success on existing corporate businesses. The classification places CVC strategic objectives along a continuum ranging from seeking substitutes to sponsoring complements. On the one hand, investment activity may be used to identify novel products, services, or technologies to replace existing corporate products, services, or technologies, that is, targeting potential substitutes. For example, CVC may serve as an early alert system allowing the corporation to identify threatening entrepreneurial technologies. Some of the objectives that fit here include ‘Exposure to New Technologies’ (McNally, 1997 ), ‘External R&D’, ‘Accelerated Market Access’ (Kann, 2000 ), and potentially ‘Identification of Acquisition Candidates’ (Siegel et al., 1988 ). On the other hand, investment activities may seek to complement corporate businesses by funding ventures that increase the value of existing corporate businesses (Brandenburger and Nalebuff, 1996 ). The two may complement each other along different dimensions: technologically (e.g. ‘Develop Business Relationships’, Birkinshaw et al., 2002 ), in the product market (e.g. ‘Demand Enhancement’, Kann, 2000 ), as well as geographically (e.g. ‘Tapping into Foreign Market’, Ernst & Young, 2002 ).

15.7 Programme governance

The governance of CVC activities is a multi-faceted topic. It covers the structure of the CVC programme, the degree of autonomy it possesses, and the compensation of the personnel in charge of making these investments. Past work provides excellent documentation of each facet of CVC governance. However, it pays less attention to the inter-dependencies between them, which we highlight in this sub-section.

We review the work on CVC governance chronologically. By presenting the studies in chronological order, rather than addressing the issues of structure, autonomy, and compensation separately, we highlight the evolution of governance practices between the second and third Corporate Venture Capital waves. The reader, however, is asked to be cautious in interpreting the results. The observed patterns may reflect temporal evolution of governance mechanisms, but may also be a product of the intentionally selective sampling employed by some studies. 12

Variety of CVC structures

The review of the work on programme structure poses a particular challenge. It is often the case that studies use a similar label to describe dissimilar programme structures. To avoid unnecessary confusion, we assign labels to each structure (see Fig. 15.7). Some firms choose to invest in entrepreneurial ventures indirectly by joining existing VC funds as limited partners. We label this practice, ‘CVC as LP’. Other firms choose to establish CVC programmes. In contrast to the independent venture capital funds, which are structured almost exclusively as a limited partnership, we observe heterogeneity in programme structures. These range from tight structures to loose ones. Programmes where current operating business units are responsible for CVC activities are denoted as having a tight structure. This is a ‘Direct Investment’ structure (e.g. Nortel Networks). Other programmes are organized as ‘Wholly-Owned Subsidiaries’, which are separate organizational structures set up for the sole purpose of pursuing corporate venture capital (e.g. Nokia Ventures). ‘Dedicated Funds’ constitute the last, and least common, structure where a firm and an independent VC fund co-manage the investment activity. Examples include Sequoia Seed Capital, a joint venture between Sequoia Capital and Cisco Systems, and TI Ventures in which Texas Instrument is the sole limited partner. 13

Siegel et al. ( 1988 ) provide detailed information regarding programme autonomy levels and compensation practices. About 66 percent of the respondents stated that they undergo a thorough review by corporate headquarters prior to each investment. Only 11 percent of the respondents are free to pursue investments without prior corporate approval, and another 21 percent are subject to only formal approval process. Interestingly, about half of the CVC programmes (48%) report that a dedicated pool of funds is made available to them on a one-time basis. 14 Other programmes are either assigned smaller funds on a periodic basis (27%), provided with funds on an ad hoc basis (19%), or did not respond (6%). Using cluster analysis, the authors identify two CVC types: programmes characterized by a high degree of autonomy and permanent financial commitment (denoted ‘pilots’), and programmes that are highly dependent on corporate approval and capital commitment (denoted ‘co-pilots’). As for the compensation scheme of CVC personnel, they find that linking pay to a venture's performance is common practice. This is achieved either by a bonus based on the venture's performance over the short or long term (29%, 14%, respectively), or direct participation in the venture fund (10%). Nonetheless, a substantial number of CVC programmes offer only base salary (31%).

Winters and Murfin ( 1988 ) observe four different structure types. 15 Two of the structures they identify (invest in funds and direct investment in companies) map directly onto ‘CVC as LP’ and ‘Direct Investment’ discussed on the previous page. They go on to discuss two types of CVC subsidiaries. Both are similar in terms of their structure (consistent with the ‘Wholly-Owned Subsidiary’ label) but differ in their investment objectives (i.e. financial vs. strategic). The authors note that a CVC subsidiary is more likely to have funds dedicated for investment activity. Furthermore, a subsidiary structure is advantageous because it attracts the co-operation of VCs by signalling corporate commitment to venture investing. It also mitigates entrepreneurs' concerns of malfeasant corporate behaviour, and offers flexibility in locating the programmes in a state with low capital gains taxes.

In a study of strategically driven CVC programmes, Sykes ( 1990 ) finds that 84 percent of the programmes invest as limited partners, 81 percent act as direct investors, and 64 percent pursue both. 16 The differences in structure do not reflect dissimilarity in objectives. The two groups rank a list of strategic objectives similarly with one exception: direct investors also seek to change corporate culture whereas limited partners see their investment as an opportunity to learn about venture capital markets. The study is also witness to an evolution in governance practices: ‘In the past few years “focused” VCLPs, dedicated to serving the specific business area interests of a sole corporate investor, have made an appearance. This is almost like having a direct investment portfolio, except independently managed’ (Sykes, 1990 : 46).

Block and Ornati ( 1987 ) focus on the compensation practices firms undertake when they establish new venture divisions. In their study of 42 Fortune 500 companies, they find many firms recognize the importance of pay-for-performance. Yet, in practice corporate venture managers are paid no differently than other corporate personnel. 17 Sykes ( 1992 ) conducts a related study and reports similar findings: the need for ‘equity-based’ compensation for venture managers is acknowledged but not always practised. 18 Among the main reasons for the lack of ‘equity-based’ compensations are: (i) a need for pay-equality vis-à-vis other corporate employees (especially those in direct contact with the venture); (ii) an effort to align the venture's goal with corporate interests; (iii) an inability to determine venture performance or manage complex compensation systems; and (iv) an attempt to avoid problems when transferring employees to and from the venture. Finally, career concerns may drive CVC personnel to shun potentially profitable ventures that pay over the long haul (Rind, 1981 ). Specifically, CVC managers are wary that they will not be in their positions to enjoy the fruits of such investments, but will be held accountable for the losses in the short run.

McNally ( 1997 ) presents a careful study of the structure of programmes in the UK. He reports that 82 percent of the respondents provide funds to entrepreneurial ventures, 43 percent invest through independent VC funds, and 25 percent do both. Moreover, the evidence suggests wholly-owned CVC subsidiaries invest in ventures directly as well as through independent VCs. This may suggest that the ‘CVC as LP’ and the other three structures are not necessarily mutually exclusive. Shifting from structure to degree of autonomy, McNally finds that programmes experience a moderate level of flexibility. This is especially true of investment in independent VCs, where a third of the programmes were not subject to headquarter's approval. In contrast, only 9 percent of the programmes investing directly in new ventures did not require any headquarter's approval. As for the interaction between the CVC structure and its objectives, there is little evidence to indicate the two are correlated. Both the programmes that invest through VC funds, and those that fund ventures directly, rank the search for new technologies, establishment of business relationships and high financial gains as their top objectives. 19 The author also notes the growing salience of dedicated funds, reporting that 46 percent of the independent VC funds that had non-financial firms as limited partners, had a sole limited partner. The majority of these funds are managed by Advent International.

Kann ( 2000 ) reports the vast majority of strategically-driven programmes are controlled by their parent corporations. She distinguishes between three structures: ‘CVC as LP’, ‘Dedicated Fund’ and a third category of corporate-managed-programmes which aggregates ‘Direct Investment’ and ‘Wholly-Owned Subsidiary’. 20 Seventy-eight percent of the programmes fall in the last category, whereas each of the first two accounts for 11 percent. Further analysis reveals a significant correlation between CVC structure and objectives. Univariate tests suggest that firms that seek to sponsor complementary ventures are more likely to pursue ‘CVC as LP’. In contrast, firms that aim to increase internal R&D capabilities are more likely to employ a corporate-managed programme structure. Unfortunately, the analysis does not allow us to determine whether CVC objectives differ between programmes structured as ‘Direct Investment’ and those structured as ‘Wholly-Owned Subsidiary’.

The Ernst & Young survey finds that 32 percent of the programmes are structured as a CVC subsidiary and 59 percent pursue some variation of ‘Direct Investment’, either as an independent unit (5%) or a fully integrated part of a corporate business unit (55%).

Birkinshaw et al. ( 2002 ) offer an insight on the governance of CVC programmes. They report that 90 percent of the programmes are owned solely by the parent corporation, but do not distinguish between ‘Direct Investment’ and ‘Wholly-Owned Subsidiary’. They, too, present evidence that the CVC programmes are only moderately autonomous: about 35 percent of the programmes do not have a dedicated pool of funds and seek approval for each investment. The authors find CVC governance and objectives are correlated. Programmes that invest externally for strategic gains are more likely to have their funds subject to corporate approval (35% of programmes with such objective), in comparison to programmes that seek only financial gains (25% of programmes with such objective). Interestingly, strategically-driven programmes experience less autonomy with respect to management of their portfolio companies, but greater autonomy in making decisions regarding the CVC programme itself. 21 Finally, they find that standard corporate salary is the common compensation scheme among CVC personnel, mainly due to concerns over pay-inequality and attempts to align a programme's interests with that of the parent corporation. Bonus based on either financial or strategic performance is used occasionally and, to a lesser extent, carries interest in CVC portfolio companies.

To summarize, three important facets of CVC governance are explored. As for programme structure, we observe four distinct categories: ‘Direct Investment’ (i.e. a corporate business unit manages CVC activity), ‘Wholly-Owned Subsidiary’ (i.e. a subsidiary is set up to handle investments), ‘Dedicated Fund’ (i.e. a fund co-managed by the firm and a venture capitalist), and ‘CVC as LP’ (i.e. capital allocated to a venture capital fund). Interestingly, we witnessed an evolution in CVC governance practices with the emergence of the ‘Dedicated Fund’ over the past decade. As for programme autonomy, we observe substantial variation along two dimensions: capital allocation and decision autonomy. Some programmes are allocated a large amount of capital upfront while others receive the necessary funds on an ad hoc basis. In some firms, the ability to make investments (i.e. fund a particular venture), and exit (i.e. sell a venture or take it public), is fully delegated to the CVC programme. In other firms, it is subject to scrutiny and corporate approval. As for the compensation of CVC personnel, we observe a growing propensity to provide high power incentives to CVC managers. These include bonuses based on financial or strategic milestones and, seldom, participation in venture success (e.g. carried interest). Standard corporate salary was the prevailing compensation scheme among CVC personnel in the past and remains the practice in a substantial minority of programmes, nowadays.

The inter-dependencies between the three governance facets have received little attention in the literature. Yet, there is some evidence to suggest that these facets are partially correlated. Tightly structured programmes (e.g. ‘Direct Investment’) are more likely to be subjected to rigorous corporate scrutiny. Also, they are more likely to employ corporate-wide compensation to avoid inequality concerns and ensure alignment with corporate interest. In contrast, loosely structured programmes (e.g. ‘Wholly-Owned Subsidiary’ and ‘Dedicated Fund’) are likely to have a dedicated pool of funds and enjoy decision autonomy. Moreover, the compensation schemes employed in these programmes often have a substantial upside. Finally, the literature indicates that passive investment through VC funds (i.e. ‘CVC as LP’) is associated with specific governance mechanisms. However, there is little evidence to suggest that CVC governance, and particularly CVC structures, differ across programmes' objectives, for the group of corporate managed programmes (i.e. Direct Investment, Wholly-Owned Subsidiary, and Dedicated Fund).

15.8 Investment relationships

Information, capital and commercial assets flow between CVC programmes and entrepreneurial ventures. From the CVC's perspective, selection and monitoring are the fundamental building blocks of a successful investment relationship. 22 The latter has to do with the mechanisms through which the CVC manages its portfolio companies once a funding deal has taken place (e.g. board seats), whereas the former addresses the ways in which a CVC programme identifies, selects and attracts prospective portfolio companies in the first place (e.g. deal flow , due diligence ). Many of the selection and monitoring mechanisms also allow the firm to leverage, or learn about, entrepreneurial inventions.

On the issue of venture selection, R. Siegel et al. ( 1988 ) find that ties to independent venture capitalists, direct contacts to entrepreneurs and referral from departments within the corporation are the main sources of deal flow. The more autonomous programmes (i.e. ‘pilots’) rank ties to independent VCs as the main source of deal flow, whereas referral from a firm's own departments is more important for ‘copilots’ (programmes that are more dependent on corporate approval and capital). An inadequate deal flow is experienced when the ventures operate in an industry that is attractive to the parent firm. 23 The authors also find that CVC programmes and independent VC funds employ similar investment criteria. Accordingly, they attribute great importance to entrepreneurs' experience and personality as well as ventures' product or market potential. On the issue of post-deal investment relationship the study describes a number of impediments to effective relationships. It reports that incompatibility between corporate and entrepreneurial cultures is a leading obstacle to an effective relationship.

A study of 31 strategically-driven programmes finds that ties to the venture capital community, and to a lesser extent referral from corporate personnel, are important deal-flow sources (Sykes, 1990 ). The author documents different aspects of the post-deal relationship including monitoring activities (e.g. attending board meetings, receiving periodic reports) and provision of value-added services to the venture (e.g. awarding expert advice). He also finds a portfolio company may be leveraged to the advantage of the parent firm (e.g. seeking advice from the venture, identifying other investment opportunities, forming business relationships). When the investment channel is one of ‘CVC as LP’ there is negligible interaction between the corporation and the venture. In these cases, the focus shifts to the role of the venture capitalist as a broker and facilitator of corporate-venture interaction.

Investment relationships in the UK are described in detail by McNally ( 1997 ). The sources of deal flow vary as firms approach potential portfolio companies either directly, or through intermediaries such as venture capitalists. Often a business relationship (i.e. customer–supplier linkages or contractual alliances) predates the investment relationship. As for the investment criteria, contrary to Siegel et al. ( 1988 ), McNally finds that CVCs assess ventures' products and market first, and only then evaluate entrepreneurs' experiences. The selection process is strict, and CVC investors fund less than 10 percent of the potential targets. 24 Once an investment is made, corporate investors closely monitor the ventures: 96 percent of them take a seat on the board and communicate with their portfolio companies on a monthly or weekly basis. The interaction is not limited to unidirectional monitoring. A vast majority of the ventures view CVC board presence positively and particularly commend (a) corporate assistance in solving short-term problems, and (b) corporate role as a sounding board to management team. These observations do not apply to firms that pursue ‘CVC as LP’. These firms have little interaction either during the pre- or post-deal phases. For example, none of the firms associated with a ‘CVC as LP’ programme has ever taken part on ventures' boards.

Firms' monitoring practices are at the centre of a few recent surveys on both sides of the Atlantic. Maula ( 2001 ) surveys 91 US-based ventures in the computer and communication industries during the late 1990s. He finds that in 31 percent of the cases, the corporate investor holds a board seat and in 40 percent of the cases it holds passive observer rights rather than an active board position. These results echo a recent study of European venture capital practices (Bottazzi, DaRin and Hellmann, 2004 ). 25 The authors find that CVC investors serve on portfolio companies' boards (68%) and conduct close monitoring and monthly site visits (70%) almost as frequently as independent venture capitalists do (78%, 76% respectively). According to a survey by Ernst & Young ( 2002 ), VC referral and direct entrepreneur referrals are the main sources of new investments, each accounting for about 30 percent of CVC deal flow. Other sources include, by order of importance, internal employees and professional service firms.

Birkinshaw et al. ( 2002 ) find substantial variation in selection and monitoring practices across programmes' objectives. Venture capitalists are the main source of deal flow for externally-focused programmes investing either for financial or strategic reasons. Other external sources include direct contact by entrepreneurs (ranked 2nd) and referral by corporate employees (ranked 3rd). The reverse rank-order holds for internally-focused programmes. As for the acceptance rates, most internally-focused programmes and all externally-focused ones screen out about 85–90 percent of all the incoming ideas and fund only 2–3 percent of the initial proposal pool. 26 With respect to post-deal practices, the majority of the programmes take a full board seat (50%) or an observer seat (39%). 27 The evidence suggests only a limited communication between the venture and the corporation; while CVC personnel interact with the venture on a weekly or monthly basis, other corporate personnel seldom do so.

To conclude, CVC programmes are highly active in selecting and managing their investment relationships. Much like independent venture capitalists, corporate investors rely on referrals from other venture capital investors for the majority of their deal flow. Employees and business partners constitute an important, yet smaller, source of prospective targets. There is only cursory evidence regarding CVC selection processes. It suggests that corporate investors and venture capitalists employ similar investment criteria, evaluating the individual entrepreneur as well as the underlying opportunity. Moreover, CVC programmes fund a small percentage of the initial deal pool. While this observation implies rigorous screening and due diligence practices, we know little about the specific steps CVC investors take. Future work should study if and when do firms leverage their skilled R&D personnel, market familiarity, and unique industry outlook to select superior ventures. Further insight might be gained by comparing the process of choosing a portfolio company with the organizational routines that are involved in selecting an alliance partner or an acquisition target.

Moreover, corporate investors are actively involved with their portfolio companies. Most programmes communicate with the ventures more than twice a month and more than two-thirds of the programmes have a board seat, or at least hold observer rights. The relationships, however, are not limited to monitoring activities. The entrepreneurs benefit from corporate advice, and at times, the ventures educate the parent corporation about new technologies or business opportunities. Again, we need further insight regarding the type of advice and support afforded by the corporation. Do firms leverage their skilled R&D personnel, manufacturing capabilities, or industry outlook to assist portfolio companies? Detailed case studies may provide an answer to this question. These studies should recognize that the nature and magnitude of such support mechanisms may vary greatly by CVC objectives.

15.9 Performance implications

The performance implications of CVC receive much attention in the literature. Common topics include the link between the programme's objective (financial or strategic) and its success, or the impact of the programme's structure on its performance. Unfortunately, the lack of agreed-upon measures of strategic and financial outcomes, and to a greater extent the ambiguity regarding whose performance is being measured, resulted in much confusion. To avoid the confusion, we break the discussion into three parts (see Fig. 15.6). The first part addresses the success of entrepreneurial ventures that are backed by corporate investors. The performance of CVC programmes is the focus of the second part. Finally, the third part addresses the implication to the parent corporation. The distinction is necessary as some ventures, and even CVC programmes, may experience benefits at the expense of their parent firm, and vice versa.

Again, a few caveats are warranted. The existing literature relies predominantly on case studies or descriptive surveys that cannot control for a number of competing causal factors such as firm size, industry attributes, or macroeconomic conditions. Even when a multivariate analysis is presented, it is often based on a cross-sectional sample and thus cannot effectively address issues of unobserved heterogeneity and temporal precedence. Moreover, the evidence is often based on surveys where participants were asked to rank their own achievements. Self-reported measures are subject to biases and misrepresentations and should be interpreted with caution. While the study of CVC objectives or governance is also liable to self-report problems, these problems are of special concern when it comes to measuring performance.

Performance of the entrepreneurial venture

There are reasons to believe that corporate backing may increase a venture's success rate. An established firm may contribute to a venture on a number of dimensions (see Table 15.3 ). First, a corporate venture capitalist may provide value-added services similar to those provided by quality VC funds (Block and MacMillan, 1993 ). Secondly, it can extend unique services, which capitalize on corporate resources and complementary assets. For example, a venture may gain access to corporate laboratories, it can employ the corporation as a readily available beta site, or leverage a firm's network of customers and suppliers as well as domestic and foreign distribution channels (Teece, 1986 ; Pisano, 1991 ; Acs et al., 1997 ; Maula and Murray, 2001 ). A corporate investor can also offer unique insights into industry trends. 28 Lastly, the fact that a focal venture is chosen by an industry incumbent, acts as an endorsement effect toward third parties and/or the capital markets (Stuart, Hoang and Hybels, 1999 ).

McNally ( 1997 ) investigates 23 corporate-backed ventures located in the UK. 29 As expected, most ventures experience substantial non-pecuniary benefits in the form of help with short-term problems (83%), and access to corporate management (70%) and technical (49%) expertise (see discussion of the investment relationship). Other benefits include the ability to leverage corporate assets and access to corporate marketing and distribution networks (39%). In almost two-thirds of the cases, the firm and the venture entered a business relationship at a later date (e.g. buyer–supplier relationships, licensing agreements, or research contracts). The most important indirect advantage to the ventures (70%) is the increase in their credibility, consistent with the endorsement effect. A small, yet substantial, group of ventures experienced pricing benefits (42%) and lower performance targets (39%), which might have come at the expense of the corporate investor. Finally, among those ventures that received indirect CVC investment (i.e. ‘CVC as LP’), almost half were not aware of the corporate investor. The only benefit they report was the enhanced opportunity for future business relationships.

Gompers and Lerner ( 1998 ) employ secondary data on more than 30,000 investment rounds in US-based ventures during the period 1983–94. They define venture success as an IPO or an acquisition at high valuation, and find that CVC-backed ventures are at least as likely to succeed as VC-backed ventures, particularly when there is a fit between the venture and the corporation. 30 They also report that CVCs invest at a premium in comparison to similar investments by independent VCs. The premium, however, is not sensitive to the degree of fit between the venture and the corporation. While CVC premium is advantageous from the venture's viewpoint (it is able to raise funds at lower cost), it may imply lower returns to the corporate investor.

Maula ( 2001 ) explores in depth the mechanisms through which 91 US-based ventures benefit from their corporate backers. Building on the responses of ventures' CEOs, he studies the role of related resources (either production or distribution), knowledge acquisition, and endorsement in value creation. 31 Consistent with previous studies, Maula finds that all channels, except the acquisition of distribution-related resources, are significantly associated with value-added experience. It further indicates that the ability to leverage corporate resources is a function of complementarities between the two, as well as prior social interaction. The prominence of the corporate investor, venture's age, and customer switching cost are associated with increases in the endorsement effect.

Note : Adopted from Kelly et al. ( 2000 ).

Maula and Murray ( 2001 ) study 325 IT and communication ventures that IPOed on NASDAQ between 1998 and 1999. Focusing on CVC investment by members of the Global Fortune 500, they report that ventures co-financed by CVC investors receive higher valuations than comparable ventures funded solely by independent VCs. Moreover, ventures that are co-financed by multiple CVC investors earn even higher valuations. Note, while Gompers and Lerner ( 1998 ) study the probability of an IPO as a function of corporate backing, Maula and Murray investigate the valuation conditioned on going through an IPO. Both studies find that corporate backing has a positive impact on a venture's performance.

In sum, prior work suggests that CVC-backed ventures experience favourable performance. These benefits are evident both in absolute terms (McNally, 1997 ; Maula, 2001 ) as well as in comparison to VC-backed ventures (Gompers and Lerner, 1998 ; Maula and Murray, 2001 ). However, we do not know whether the benefits to the venture come at the expense of the corporation (e.g. inflated valuations). Further, it is unclear whether a venture's favourable performance should be attributed to the firm's ability to pick winners, or its ability to build superior ventures. A comparison between two groups: ventures funded by a single corporate investor, and those funded by a syndicate of corporate and independent venture capitalists—may shed light on the issue. If corporate investors excel in venture selection, the two groups should command similar round valuations and experience similar probability of success (e.g. an IPO event). If, however, firms are good at building strong ventures, the two groups should experience similar probability of success, yet ventures backed by a sole CVC may experience lower round valuation (i.e. at time of selection and investment they were not yet of superior quality).

Finally, we need to map the mechanisms through which corporate backing enhances the value of ventures. Future research should explore the effect of technological overlap (e.g. cross-citation of patents), shared manufacturing operations (e.g. the venture, or the firm, are listed as a major supplier of the other), joint marketing efforts (e.g. listings of the other products in own marketing material, use of similar third-party marketing channels), or product complementarities (e.g. product offering in related Corp-Tech categories) on ventures' performance (e.g. probability of IPO or growth in sales).

Performance of the CVC programme

Evaluating the performance of the CVC programme is a challenging task. There is no agreed-upon list of strategic benefits on which programmes are measured. This is further complicated by the fact that measuring programmes solely on their strategic contribution may hide financial losses, and vice versa. Yet, the difficulties did not deter scholars from addressing this issue. The work relies predominantly on surveys of CVC executives who rate the performance of their own programme. The responses inform us as to the spectrum of benefits associated with corporate venture capital, and the degree to which each was met. The benefits broadly fall into the following categories, echoing the list of CVC objectives: Internal Rate of Return (financial), window on technology (strategic), identifying acquisition candidates (strategic), strategic relationships development (strategic), demand enhancement (strategic), foreign market entry (strategic), change to corporate culture (strategic), and leverage internal technological developments (strategic).

R. Siegel et al. ( 1988 ) request corporate venture capitalists to rate their satisfaction with the programme's performance. The authors find that other than ‘opportunities to improve manufacturing processes’ all CVC objectives were reportedly met with above-satisfactory levels, with ‘exposure to new technologies and markets’ receiving the highest rating. Further analysis links programme attributes to ultimate performance, comparing the performance of ‘pilot’ (high degree of autonomy, permanent financial commitment) and ‘co-pilot’ (highly dependent on corporate approval and capital commitment) programmes. While ‘pilots’ attached greater weight to financial objectives, they reported higher satisfaction in achieving both financial and strategic objectives. The only exception was the higher satisfaction of ‘co-pilots’ with identification of acquisition opportunities.

Sykes ( 1990 ) investigates the overall strategic value generated by CVC programmes, using a sample of 31 firms that pursue strategically-driven investment. About 40 percent of the respondents report very high value creation, while 24 percent report nil or negative value. The magnitude of CVC value creation varies by investment structure and programme objective. In particular, roughly 50 percent of the respondents state strategic value is more likely to be generated through direct investment rather than investment as limited partners. Programme longevity, however, is similar for both groups: a median age of four years. Programmes motivated by the need to ‘identify new opportunities’ and ‘develop business relationships’ were associated with strategic value creation, while those seeking potential acquisition targets scored unsatisfactory levels. Interestingly, this pattern holds irrespective of the programme's structure. Finally, programmes that rated higher on strategic value creation are also associated with higher return on investment.

McNally ( 1997 ) surveys CVC programme directors in 28 UK-based organizations. He reports significant differences in the performance of programmes that follow a ‘CVC as LP’ structure versus those that invest directly. About 50 percent of the ‘CVC as LP’ programmes terminated their investment activity, and all of them did so due to unsatisfactory performance. In contrast, only 39 percent of the programmes that directly fund ventures no longer pursue investment activity, of which only 33 percent state poor performance as the reason for termination. None of the benefits associated with investment as limited partners is strategic. Rather, the benefits consist of the opportunity to learn about venture capital, gain financial returns, as well as enhance social responsibility. In contrast, programmes that directly invest in entrepreneurial ventures report high satisfaction with strategic goals, such as the opportunity to develop business relationships and exposure to new markets and technologies. 32

The study by Gompers and Lerner ( 1998 ) may also shed light on programme performance. To the extent that programme longevity is a proxy of its success, CVC programmes do not fare as well as independent VC funds: a mean of 2.5 years (and 4.4 investments) for the former compared to 7.1 years (and 43.5 investments) by the latter. Interestingly, investment in ventures operating in the same line of business, which they denote ‘strategic fit’, is associated with greater programme stability. If a strategic fit exists in at least half of a programme's investments, its life-span is equivalent to that of independent VC funds. Furthermore, the authors report that the likelihood of a CVC-backed venture success is similar to that of a VC-backed venture, and increases when there is a fit between the venture and the corporation. They also find that CVC investments are made at a premium compared to similar investments by independent VC funds.

Birkinshaw et al. ( 2002 ) survey CVC executives as well. They find that internal rate of return (IRR) and financial gains are the most common measures used by firms to evaluate their CVC programme. In terms of delivering on objectives, the results suggest programmes fare better with respect to strategic goals. Gaining a window on technology was at the top of the list. The ability to deliver financial returns was ranked fourth after ‘better use of existing corporate assets’ and ‘increased visibility/awareness of corporation’. Interestingly, programmes of different objectives exhibit similar performance along the financial, strategic, and internal motivation dimensions.

Hill et al. ( 2004 ) utilize the same database in a rigorous investigation of the determinants of CVC performance. In a multivariate regression analysis, they find that programmes that aggressively pursue syndication with independent VCs experience greater perceived strategic value, higher investment output per year and lower closure rate among portfolio companies. 33 The positive effect of syndication on investment output per year is particularly strong for programmes seeking investment in external ventures. They find that the degree of CVC governance (i.e. having pre-allocated capital and minimal corporate review) does not affect perceived strategic value for externally focused programmes. It is, however, significantly associated with a decrease in portfolio companies' closure rates. A decrease in closure rates is also associated with the use of VC-like compensation (i.e. carried interest) for externally focused programmes.

To conclude, there is mixed evidence regarding the performance of corporate venture capital programmes. Nonetheless, a few consistent observations emerge. The lifespan of CVC programmes is no longer than that of independent VC funds. The degree to which firms experience strategic and financial benefits varies by programme objectives and governance structure. That being said, programmes that perform well strategically also report favourable financial returns. The ability to experience strategic benefits diminishes substantially for firms investing as limited partners in an existing VC fund (i.e. CVC as LP).

Our understanding of programme performance can be advanced in a couple of ways. First, there is a need for a universal performance metric. Currently, the strategic performance of a CVC programme is either collapsed into a single measure (Sykes, 1990 ), or evaluated using eighteen different components (McNally, 1997 ; Birkinshaw et al., 2002 ). A useful metric is one that offers a parsimonious, yet meaningful, evaluation of CVC contribution. Along these lines, it may be useful to summarize the programme's performance along three dimensions: (a) technology, (b) the product market, and (c) geography.

Secondly, the design and measurement of CVC performance should be revisited. The evidence we present above is almost exclusively based on executives' accounts of their programme performance. The measures have many advantages, yet they are also subjective and liable to various single source biases. Future work should triangulate these informative, yet individual, assessments with quantitative measures such as a count of patent cross-citation patterns, count of joint marketing efforts, and so on. Separately, to the extent that CVC executives construe their own performance favourably, we may overestimate programme success. These concerns may be alleviated by soliciting evaluations from other, non-CVC personnel (e.g. CEO, CFO, COO and head of business units).

Performance of the parent corporation

The parent corporation does not necessarily experience favourable outcomes when its portfolio companies, or even the CVC programme, report positive performance. As we state above, benefits to the entrepreneurial venture may come at the expense of the corporate investor (e.g. inflated valuations). It is difficult to assess the contribution of corporate venture capital even when interests are aligned. A programme aimed at enhancing demand may affect revenue and profits in the short term, whereas the contribution of a window on technology strategy is expected to occur over a longer period of time. In spite of these challenges, a handful of scholars explore the performance implications to the investing corporations. These studies employ pooled cross-sectional time-series samples, as opposed to survey responses. They mostly centre on the effect on firm innovation rates (e.g. patenting output), implicitly focusing on the role of CVC as a window on technology.

Dushnitsky and Lenox ( 2005c ) explore investing-firms' value creation using a panel of about 1,200 US public firms during the period 1990–99. They compare investing firms' value creation to that experienced by non-investing firms in the same industry during the same year. The main advantage of their proxy for firm value creation, Tobin's q, is the fact it captures both the narrow financial returns to CVC investment and the long-term strategic benefits. 34 The results of multivariate regression analysis suggest that CVC is associated with the creation of firm value, but that this relationship is conditional on both temporal and sectoral factors. The positive relationship between CVC and firm value is greatest within the devices and information sectors. Moreover, the marginal contribution of CVC rises when firms explicitly pursue strategic objectives.

Chesbrough and Tucci ( 2004 ) investigate the research activities of 270 US and foreign CVC investing firms, during the period 1980 to 2000. They explore variations in the level of corporate R&D expenses prior to, and immediately after, the onset of the CVC programme. A multivariate regression analysis indicates the existence of a CVC programme is significantly associated with increases in corporate R&D, even after controlling for firm factors and industry affiliation. Building on these findings, the authors state that corporate venture capital is of strategic value to the parent corporation, and may supplement other R&D efforts.

Dushnitsky and Lenox ( 2005a ) analyze a large unbalanced panel of US public firms during the time period 1975–95. The authors study the innovation implications of CVC, using a count of citations to each firm's patents. By utilizing panel data analysis and controlling for unobserved, time-variant heterogeneity, they find that increases in CVC investment are associated with subsequent increases in citation-weighted patenting rates. This finding is consistent with the view of CVC as a window on novel technologies. Further, the magnitude of this effect depends on the industry's Intellectual Property (IP) regime and firms' absorptive capacity. It is in weak IP regimes that CVC is associated with greatest contribution to firms' innovativeness. This finding is consistent with the view that ventures resort to secrecy in such industries and CVC provides the corporation with a unique opportunity to conduct due diligence and participate on board meetings thus allowing it to pierce the veil of secrecy and learn about the venture's closely-held technologies.

Schildt et al. ( 2004 ) study the venturing activities of the largest 110 US firms in the information and telecommunication sectors during the period 1990–2000. The authors compare the inclination to perform explorative learning through CVC, strategic alliances, joint ventures, and acquisitions. They define explorative innovation activity as investing-firm patents citing portfolio companies, and exploitative innovation as patents citing both firm's prior patents and portfolio companies. In comparison with acquisition, corporate venture capital is found to be only weakly associated with explorative behaviour. The results suggest that exploitative activity is as important a part of CVC investment as it is for other forms of inter-organizational learning. 35

To conclude, a growing body of work investigates the contribution of CVC programmes to the parent corporation. The evidence suggests that investment is associated with firm value creation. The benefits are likely to be higher for strategically-driven programmes. More importantly, the ability to enjoy an effective window on technology is a function not only of the investment activity per se, but also of the parent firm's absorptive capacity as well as other, industry-level factors.

Future work may expand on these studies in a number of ways. First, one should recognize the disconnection between venture and parent firm success. As we mentioned above, a venture may command inflated valuations which could have an adverse effect on parent firm performance. On the other extreme, an outright failure of the venture may be associated with substantial strategic benefits. These benefits may accrue to the investing firm when technologies remain viable after the originating venture has dissolved (Hoetker and Agarwal, 2004 ) and failure itself carries informational weight (McGrath, 1999 ).

Secondly, scholars should go beyond firm-innovation-rates and study the impact of CVC on other facets of firm performance. It is all the more important to do so given that some of the more salient CVC objectives (e.g. enhancing demand or building strategic partnerships) are not aimed at supporting a firm's R&D effort. Admittedly, a programme aimed at enhancing demand (i.e. financing ventures with complementary products or services) may in turn increase the demand for corporate innovations and ultimately result in an increase in firm innovation rate. Nonetheless, more direct impact may be recorded on firm market share, number of strategic partners and so on.

Finally, the field of corporate venture capital may benefit from, as well as contribute to, an explicit discussion of players' bargaining power. For example, Gompers and Lerner ( 1998 ) observe corporate venture capitalists tend to invest at a premium. They speculate that existing investors, or the ventures themselves, bargain away some of the value. Future work should continue to explore whether CVC creates value to begin with, and if so, what proportion is appropriated by the investing firm. To address the latter question, scholars need to identify events that affect bargaining power. A softening of the market for IPO, or a variation in CVC prominence in the venture capital community may prove useful instruments in such future exploration.

15.10 Directions for future research

We know much more about corporate venture capital today. Nonetheless, there are a number of issues that merit future research. First, a careful documentation of corporate venture capital practices is called for. Such work may constitute a sound basis for a comparison with previous work and rigorous analysis of CVC governance, investment activity, and performance. Birkinshaw, Murray and van Basten-Batenburg ( 2002 ) provide a good starting point, offering detailed insight into corporate objectives, the governance of the programmes, the relationship with the portfolio companies and so on. Future work faces a few challenges. It should construct comprehensive databases and avoid convenience sampling of CVC programmes (e.g. hastily identifying only subsidiary-based programmes or narrowly focusing on financially-oriented programmes). Future studies could also benefit from the development of parsimonious metrics which sufficiently describe each aspect of CVC activity. Not only would it elucidate the role of each aspect and the inter-dependencies between them, but also it would facilitate building a cumulative body of knowledge about corporate venture capital. Another challenge is to move away from cross-sectional studies and towards longitudinal samples that allow one to disentangle firm factors from macroeconomic or industry effects (e.g. Dushnitsky and Lenox, 2005a ; Chesbrough and Tucci, 2004 ; Gompers and Lerner, 1998 ).

Secondly, the antecedents to corporate venture capital have not received appropriate attention in the literature. Current work identifies the factors that affect firm decision not-to-pursue investment activity (McNally, 1997 ) as well as the industry and firm level factors that drive CVC investment (Dushnitsky and Lenox, 2005b ). Further investigation of the factors that motivate firms to invest in entrepreneurial ventures may shed light on the strategic role corporate venture capital plays. For example, we need to learn the identity of those within the organization who decide to launch a CVC programme and the processes involved in this decision. These insights, in turn, can help explain variation in programme objectives, structure and performance. Other opportunities exist in advancing our understanding of corporate governance mechanisms (at the firm level) and their impact on the practice of corporate venture capital.

Thirdly, the study of CVC antecedents should go beyond a firm-centric investigation to explain why some CVC-venture pairs form an investment relationship, while others do not. To that end, there is a need to consider corporate and entrepreneur perspectives in tandem. Dushnitsky ( 2004 ) provides initial evidence to that effect. He argues that many investment relationships do not materialize because the corporation will not invest unless the entrepreneur discloses her invention, and the entrepreneur is wary of doing so, fearing imitation. As a result, Dushnitsky predicts that a firm is more likely to exploit entrepreneurial disclosure and thus relationships are less likely to be formed when (a) the invention is a potential substitute of corporate products, and (b) a corporate business unit manages investments that potentially substitute their own products. The author also conjectures investment relationships are more likely to form when the products are complements. Analyses of start-up stage investment during the 1990s support these hypotheses and suggest that, at times, CVC programmes aimed at enhancing demand may flourish while those seeking a window on technology may meet substantial hurdles. 36 In particular, firms that view their investment activity as a window on novel and potentially substituting entrepreneurial technologies may find such entrepreneurs the least likely to seek direct corporate backing.

More empirical and theoretical work on the topic is warranted. If imitation concerns are driving investment patterns, CVC-venture investment relationships should seldom occur at the start-up stage. To the extent that mature ventures are better equipped to preclude imitation (e.g. they have developed products that can be patented), investments in potential substitutes may become more common during the expansion and later stages. Indeed, the probability of an investment relationship between a firm and a venture of the same industry (i.e. potential substitutes) is low at the start-up stage and increases as a venture matures (Gompers, 2002 ). 37 By studying corporate and entrepreneur perspectives concurrently, future work can deepen our understanding of demand-enhancing and technology-seeking corporate venture capital, and the success rate at various stages of investment.

Fourthly, the inter-dependencies between independent venture capitalists and corporate investors constitute a fertile area for future research. While both players seek to invest in entrepreneurial ventures, there is little theory and even less empirical evidence regarding the indirect effect one group of investors has on the other. One exception is the work by Dushnitsky ( 2004 ) who speculates IVCs exert externalities on corporate investors, as highly sought-after entrepreneurs may opt for IVC backing and away from corporate funding. The externalities are attributed to the differences in the propensity of investors to expropriate entrepreneurial invention and its effect on entrepreneurs' investor choices. Additional empirical efforts are needed to document these externalities. The researcher can potentially exploit cross-industry and cross-national variations in the size and salience of the IVC and CVC communities to gauge the magnitude and direction of these externalities. Such empirical efforts should then be used to identify additional mechanisms through which externalities—be that positive or negative—take effect.

There is also room to explore the direct relationship between IVCs and CVCs. Anecdotal evidence regarding direct collaboration between the two investor groups is widespread. Yet only limited work on joint syndication practices or other forms of co-operation exists. A couple of recent studies address these questions. Maula et al. ( 2005 ) report that independent VCs and corporate investors add value to their portfolio companies along different dimensions. Their findings highlight venues for potential collaboration between the two investor groups. Dushnitsky and Shapira ( 2004 ) find persistent differences in the structure of venture capital syndicates that involve a corporate investor, compared to those that consist solely of independent VCs.

At the macro level, there are many opportunities to explore the relationship between CVC investment and industry and national level factors. The historical patterns of corporate venture capital in the US suggest that technological ferment and active financial markets are important drivers of each investment wave. Industry-level analysis (Dushnitsky and Lenox, 2005b ) and cross-country evidence points at these factors as well as the strength of the legal regime. The fifth avenue for future research should aim to expand on this work. A comprehensive study of technological capabilities, legal regime, capital market, and competition levels may shed more light on the absolute, as well as relative, role these factors play in stimulating corporate venture capital. The analysis should go beyond the general categories; for example, within the broad legal regime definition we may find that the effect of rule-of-law or anti-directors'-rights differs from that of strong intellectual property rights. Finally, scholars should also distinguish between those factors that are driving firms' investment behaviour (i.e. originating CVC), and those that attract corporate venture capital (i.e. receiving CVC).

Relatedly, the impact of corporate venture capital on economy-wide issues is under-explored. While the dollar value of corporate venture capital activity is significantly lower than overall corporate R&D, there are reasons to believe its macroeconomic impact would exceed its relative share of innovative efforts. Corporate investors possess complementary assets and commercialization capabilities which, combined with entrepreneurs' innovative technologies, are likely to translate into industry growth, productivity increases, and technological advancement. Moreover, a corporation may syndicate investments with other firms in its own industry or beyond it as a vehicle to promote standards (e.g. the Linux company, Red Hat, received funding from Compaq, IBM, Intel, Novell, Oracle, and SAP). Therefore, future work might study the impact of CVC on growth rates in the focal industry and related industries. The effect on technological trajectory and incumbent persistence should also be explored.

Finally, institutional changes are reshaping the market for entrepreneurial financing. The literature has long recognized the rule of property right protection in facilitating and governing entrepreneurial activities (for an excellent review, see Fogel, Hawk, Morck and Yeung in Chapter 20 of this Handbook). As noted above, CVCs' relationships with entrepreneurial ventures, and indirectly IVCs, are particularly sensitive to the strength of the property right institution (i.e. the legal environment affecting an entrepreneur's ability to protect her rights to the invention or business idea). As a result, one may expect relatively more corporate-backed deals under institutional environments that secure strong property rights. Future work should explore the impact of different property right regimes on the relationships between entrepreneurs, corporate and independent investors.

Another notable institutional change is the Sarbanes-Oxley Act of 2002 (hereafter SOX). The act is intended to protect shareholders from accounting errors and fraudulent practices in the enterprise world. Experts predict that the impact of the SOX on the venture capital market will equal that of the ‘Prudent Man’ Act of 1979. First, there are substantial compliance requirements for going public (see Section 404 of the SOA), which pushes back the average ‘IPO-able’ age for venture-backed companies and may make an exit through an IPO less attractive altogether (Ernst & Young, 2002 ). Secondly, stricter requirements for board-independence imply that top talent can no longer sit on multiple boards and that companies cannot offer option-based compensation to attract industry experts (Ernst & Young, 2004 ). 38 Both trends might result in a greater role for corporate investors. As more and more entrepreneurial ventures go through expansion and late stages as private companies, they may seek corporate venture capital which offers not only funding but also access to corporate complementary assets, laboratories, and distribution channels that are crucial at the expansion and late stages. Moreover, as the availability of top talent is constrained, corporate venture capital may be an effective way to secure high-quality industry, marketing, and managerial advice. Future research may play an important role in charting the opportunities, and threats, these changes pose to corporate investors.

Acs Z. J. , R. Morck , J. M. Shaver and B. Yeung ( 1997 ). ‘ The Internationalization of Small and Medium-sized Enterprises: A Policy Perspective ’. Small Business Economics , 9: 7–20. 10.1023/A:1007991428526

Google Scholar

Birkinshaw, J. , G. Murray , and R. van Basten-Batenburg ( 2002 ). Corporate Venturing: The State of the Art and the Prospects for the Future . London: London Business School.

Google Preview

Block, Z. and I. Mac Millan ( 1993 ). Corporate Venturing: Creating New Business Within the Firm . Boston: Harvard Business School Press.

—— and O. A. Ornati ( 1987 ). ‘ Compensating Corporate Venture Managers ’. Journal of Business Venturing , 2: 41–52. 10.1016/0883-9026(87)90018-8

Bottazzi, L. , M. Da Rin and T. Hellmann ( 2004 ). ‘ The Changing Face of the European Venture Capital Industry: Facts and Analysis ’. Journal of Private Equity , 7(2): 26–53. 10.3905/jpe.2004.391048

Brandenburger, A. and B. Nalebuff ( 1996 ). Co-opetition. Harvard Business Press.

Bygrave, W. D. ( 1989 ). ‘ The Entrepreneurship Paradigm (II): Chaos and Catastrophes Among Quantum Jumps? ’ Entrepreneurship: Theory and Practice , 14(2): 7–30.

Chesbrough, H. W. (2002). ‘Making Sense of Corporate Venture Capital’. Harvard Business Review , 80(3) (March).

—— and C. Tucci (2004). ‘Corporate venture capital in the context of corporate innovation’. Paper presented at the DRUID Conference.

Djankov, S. , R. La Porta , F. López-de-Silanes and A. Shleifer ( 2002 ). ‘ The Regulation of Entry ’. Quarterly Journal of Economics , 117(1): 1–37. 10.1162/003355302753399436

Dushnitsky, G. (2004). ‘Limitations to inter-organizational knowledge acquisition: The paradox of corporate venture capital’. Best Paper Proceedings of the 2004 Academy of Management Conference. New Orleans, LA.

—— and M. J. Lenox ( 2005 a). ‘ Corporate Venture Capital and Incumbent Firm Innovation Rate ’. Research Policy , 34(5): 615–39.

—— and —— ( 2005 b). ‘ When do Firms Undertake R&D by Investing in New Ventures? ’ Strategic Management Journal , 26(10): 947–65. 10.1002/smj.488

—— and —— ( 2005 c). ‘ When Does Corporate Venture Capital Investment Create Firm Value? ’ Journal of Business Venturing , 21(6): 753–772. 10.1016/j.jbusvent.2005.04.012

—— and Z. Shapira (2004). ‘Decisions under uncertainty and corporate venture capital Syndication’. The Wharton School Working Paper.

Ernst & Young (2002). Corporate Venture Capital Report.

—— (2004). IPO Insights 2003: The Seventh Annual IPO Transformation .

Fast, N. D. ( 1978 ) The Rise and Fall of Corporate New Venture Divisions . Ann Arbor, MI: UMI Research Press.

Furman, J. L. , M. Porter and S. Stern ( 2002 ). ‘ The Determinants of National Innovative Capacity ’. Research Policy , 31: 899–933. 10.1016/S0048-7333(01)00152-4

Gompers, P. ( 1995 ). ‘ Optimal Investment, Monitoring and the Staging of Venture Capital ’. Journal of Finance , 50: 1461–89. 10.2307/2329323

—— ( 2002 ). ‘ Corporations and the Financing of Innovation: The Corporate Venturing Experience ’. Economic Review – Federal Reserve Bank of Atlanta , 87(4): 1–17.

——  J. Lerner (1998). ‘The determinants of corporate venture capital success: organizational structure, incentives and complementarities’. NBER Working Paper #6725.

—— —— and D. Scharfstein ( 2004 ). ‘Entrepreneurial Spawning: Public Corporations and the Genesis of New Ventures’, 1986–99. Journal of Finance , 60(2): 577–614.

Guth, W. and A. Ginsberg ( 1990 ). ‘ Guest Editor's Introduction: Corporate Entrepreneurship ’. Strategic Management Journal (SI)11: 5–15.

Hall, B. , A. Jaffe and M. Trajtenberg (2001). ‘The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools.’ NBER Working Paper 8498.

Hardymon, G. , M. De Nino and S. Malcolm ( 1983 ). ‘ When Corporate Venture Capital Doesn't Work ’. Harvard Business Review , 61: 114–120.

Hill, S. A. , J. M. Birkinshaw and G. Murray ( 2004 ). ‘ Corporate venture unit structure and performance: Adoption of venture capital models to the corporate context ’. Working Paper. London: London Business School.

Hoetker, G. and R. Agarwal (2004). ‘Death hurts, but it isn't fatal: The post-exit diffusion of knowledge created by innovative companies’. UIUC Working Paper.

Jeng, L. A. and P. Wells ( 2000 ). ‘ The Determinants of Venture Capital Funding: Evidence across Countries ’. Journal of Corporate Finance , 6: 241–89. 10.1016/S0929-1199(00)00003-1

Kann, A. ( 2000 ). Strategic venture capital investing by corporations: A framework for structuring and valuing corporate venture capital programs. (Unpublished Dissertation). Stanford University.

Keil, T. (2002). External Corporate Venturing: Strategic Renewal in Rapidly Changing Industries. Quorum Books.

Kelly, M. J. , J. L. Schaan and H. Joncas (2000). ‘Collaboration between technology entrepreneurs and large corporations: Key design and management issues’. University of Ottawa Working Paper.

Klepper, S ( 2001 ). ‘ Employee Startups in High-Tech Industries ’. Industrial and Corporate Change , 10(3): 639–74. 10.1093/icc/10.3.639

La Porta, R. , F. López- de-Silanes , A. Shleifer and R. Vishny ( 1998 ). ‘ Law and Finance ’. Journal of Political Economy , 106(6): 1113–56. 10.1086/250042

Maula, M. V. J. ( 2001 ). ‘ Corporate Venture Capital and the Value-added for Technology-based New Firms. ’ Doctoral dissertation, Helsinki University of Technology.

—— and G. Murray ( 2001 ). ‘Corporate Venture Capital and the Creation of US Public Companies’, in Hitt, Amit, Lucier and Nixon (eds) Creating value: Winners in the New Business Environment . Oxford: Blackwell.

——  E. Autio and G. Murray ( 2005 ). ‘ Corporate Venture Capitalists and Independent Venture Capitalists: What Do They Know, Who Do They Know, and Should Entrepreneurs Care? ’ Venture Capital: An International Journal of Entrepreneurial Finance , 7(1): 3–19. 10.1080/1369106042000316332

Mc Grath, R. ( 1999 ). ‘ Falling Forward: Real Options Reasoning and Entrepreneurial Failure ’. Academy of Management Review , 24(1): 13–30. 10.2307/259034

Mc Nally, K. ( 1997 ). Corporate Venture Capital: Bridging the Equity Gap in the Small Business Sector . London: Routledge.

Pisano, G. ( 1991 ). ‘ The Governance of Innovation: Vertical Integration and Collaborative Arrangements in the Biotechnology Industry ’. Research Policy , 20: 237–49. 10.1016/0048-7333(91)90054-T

Prowse , D. S. (1998). ‘The economics of the private equity market’. Federal Reserve Bank of Dallas , 3rd quarter.

Rind, K. W. ( 1981 ). ‘ The Role of Venture Capital in Corporate Development ’. Strategic Management Journal , 2: 169–80. 10.1002/smj.4250020206

Rosenstein, J. , A. V. Bruno , W. D. Bygrave and H. T. Taylor ( 1993 ). ‘ The CEO, Venture Capitalists, and the Board ’. Journal of Business Venturing , 8: 99–113. 10.1016/0883-9026(93)90014-V

Schildt, H. A. , M. V. J. Maula and T. Keil ( 2004 ). ‘ Explorative and Exploitative Learning from External Corporate Ventures ’. Entrepreneurship Theory & Practice . (SI on Entrepreneurial Learning) 29(4): 493–515.

Siegel, R. , E. Siegel and I. Mac Millan ( 1988 ). ‘ Corporate Venture Capitalists: Autonomy, Obstacles and Performance ’. Journal of Business Venturing , 3: 233–47. 10.1016/0883-9026(88)90017-1

Sorenson, O. and T. E. Stuart ( 2001 ). ‘ Syndication Networks and the Spatial Distribution of Venture Capital Investments ’. American Journal of Sociology , 6: 1546–88. 10.1086/321301

Stuart, T. E. , H. Hoang and R. C. Hybels ( 1999 ). ‘ Interorganizational Endorsements and the Performance of Entrepreneurial Ventures ’. Administrative Science Quarterly , 44: 315–49. 10.2307/2666998

Sykes, H. ( 1986 ). ‘ The Anatomy of a Corporate Venturing Program ’. Journal of Business Venturing , 1: 275–93. 10.1016/0883-9026(86)90005-4

—— ( 1990 ). ‘ Corporate Venture Capital: Strategies for Success ’. Journal of Business Venturing , 5(1): 37–47. 10.1016/0883-9026(90)90025-O

—— ( 1992 ). ‘ Incentive Compensation for Corporate Venture Personnel ’. Journal of Business Venturing , 7: 253–65. 10.1016/0883-9026(92)90001-8

Teece, D. J. ( 1986 ). ‘ Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy ’. Research Policy , 15: 285–305. 10.1016/0048-7333(86)90027-2

Thornhill, S. and R. Amit ( 2001 ). ‘ A Dynamic Perspective of Internal Fit in Corporate Venturing ’. Journal of Business Venturing , 16: 25–50. 10.1016/S0883-9026(99)00040-3

Timmons, J. A ( 1994 ). New Venture Creation , 4th edn. Homewood, IL: Richard D. Irwin.

Winters and Murfin ( 1988 ). ‘ Venture Capital Investing for Corporate Development Objectives ’. Journal of Business Venturing , 3: 207–22. 10.1016/0883-9026(88)90015-8

The first VC fund, American Research and Development, was formed in 1946. Digital Equipment, Memorex, Raychem, and Scientific Data Systems are only some of the first success stories of the venture capital industry.

Gompers and Lerner ( 1998 ) summarize the causes for the venture capital revival in the 1980s. The ‘prudent man’ amendment to the Employee Retirement Income Security Act of 1979 led pension funds to funnel a fraction of their portfolios towards VC investments. A year earlier, capital gains tax rates were lowered effectively increasing the returns on investments. Finally, the emergence of technological opportunities, for example biotechnology and personal computers, stimulated a further investment.

A round may consist of several investments by different investors, some of which may be corporate investors while others may be independent VC funds. The amounts are adjusted to 2003 dollars using US annual CPI.

We excluded investments post-1997 as they were clearly dominated by firms in the information sector (see Panel B) and overshadow variance in prior activity. Sectors were defined by SIC code as follows: chemicals (28** excluding 2834 and 2836, 29**, 3080), pharmaceuticals (2834, 2836), devices (38**), and information (357*, 367*, 48**, 3663).

Results are for a sample of 44 different countries (excluding the US) and are based on pairwise correlations at the ( p < .1) significance level. Venture Economics is a source of CVC in- and out-flows. The World Bank (WDI online) and La-Porta et al. (La Porta et al., 1998 ; Djankov et al., 2002 ) provide technological, legal, financial indexes at the national level.

Investment stage is defined based on venture's development, ranging from Startup, through Early, and Expansion to Later (based on National Venture Capital Association definitions). The term ‘Early stage’ describes ventures which are undergoing product development and initial marketing, manufacturing and sales activities. Ventures in the Expansion stage usually have developed products and have a developed consumer base. These ventures experience increasingly growing revenue, but are not likely to be profitable. Later stage ventures are beyond expansion stage and exhibit consistent growth. Later stages include private equity investment such as acquisition or LBO, which are not considered as venture capital investments.

The most comprehensive survey (Birkinshaw et al., 2002 ) covers less than a hundred corporate venture capital programmes across three continents (Asia, Europe and North America).

A firm may list a number of objectives in its response, thus primary objectives are not mutually exclusive.

The decision not to pursue CVC is not due to lack of opportunity on the firms’ part: about 67 percent% of the 45 companies were approached either by an entrepreneurial venture or an independent VC fund. Of the firms that were approached only 44 percent% (29%) entertained the idea of direct investment (investing through a VC fund).

Kann's ( 2000 ) results are based on interviews and secondary data for 152 CVC programmes operated by 120 corporations. All CVC programmes were listed on the Directory of Corporate Venturing (AssetsAlternatives) or MoneyTree (Price Waterhouse Coopers).

Kann ( 2000 ) argues that such a goal is common in industries that experience (1) technologies that are at the early stage of their life cycle; (2) emergence of standards; or (3) saturated demand.

Governance practices may be over, or under, reported to the extent that different facets of CVC governance are correlated. For example, a study focusing on CVC of a particular structure (e.g. wholly-owned subsidiary) may emphasize compensation practices that might not be common across all programs.

The VC firm that manages TI Ventures, Granite Ventures, heads yet another dedicated fund, Adobe Ventures.

The majority of the respondents state a large pool of funds was specifically earmarked for venture capital investment on a one-time basis. This practice is common among independent VC funds. Each limited partner commits to provide a certain amount of money, and transfer the funds based on VC's ‘capital calls’.

The authors mention a fifth programme structure which invests solely in internal ventures.

Unfortunately, the study does not clarify whether direct investors includes investment by a CVC subsidiary or is limited solely to investment by corporate business units.

They found that 69 percent% are not compensated any differently than their corporate peers.

Sykes ( 1992 ) reports that only two corporate ventures received stock-like compensation and two others received standard corporate pay. The other four had a bonus based on long or short term performance.

McNally notes that ad hoc investments directed at entrepreneurial ventures (rather than through VCs) are likely motivated by strategic, not financial, objectives.

Kann refers to investment channel rather than structure . The third group consists of CVC investment ‘… either through an internal venture capital business unit, a wholly owned venture capital subsidiary, an existing business development group or through the operating business units’ (Kann, 2000 : 15).

In comparison to financially-oriented programmes, strategically-oriented programmes report lower levels of decision autonomy with respect to establishment of investment criteria and hiring, but higher levels of decision autonomy in making US$1M–US$5M investments or pursuing an IPO.

Equally important is entrepreneurs' perspective. From their perspective the investment relationship is an opportunity for monetary and non-pecuniary support. Because the majority of the work on the topic builds on survey of CVC programmes we have only limited account of entrepreneurs' viewpoint, and most of it is framed in the context of ventures' overall performance. Therefore, it is presented in the ‘ventures’ performance’ section.

This counter-intuitive observation may be explained by the fact that entrepreneurial concerns of potential imitation are particularly high in such circumstances, thus shifting deal flow away from corporate investors and towards alternative sources of funding (e.g. VC funds). See also Directions for Future Research section.

The investment amount and the CVC's industry affiliation are reportedly the leading criteria in entrepreneurs' investor choice (McNally, 1997 ).

Based on the Survey of European Venture Capital (SEVeCa). The survey was sent to all registered European venture capital firms operating between 1998 and 2001, and reached a 15% response rate.

Programmes that invest internally with the goal of spinning out ventures are the exception. These programmes consider about 30 percent% of the incoming ideas and invest in approximately 15 percent% of all proposals.

These proportions may be understated as internally-focused programmes can exert monitoring in other forms.

Many ventures appreciate CVCs' expertise, as Rosenstein et al. ( 1993 ) find in a survey of 162 ventures. One entrepreneur shared his opinion of corporate investors, ‘[they] had a better understanding of operating business—hands-on versus venture capitalists whose experience is often obtained vicariously’. A more recent testimony was voiced by a founder of a software venture: ‘Lane15 Software … needs advanced warning of trends and technologies in microprocessors and computer systems. Investments from Intel Capital and Dell Ventures … ensure [it] has an insider's knowledge’ ( Entrepreneur magazine, 7/2002).

We focus on the benefits associated with corporate-backing. However, corporate investment is also associated with some difficulties: two ventures (9%) experienced difficulties in obtaining further financing.

A venture and a corporate investor exhibit ‘direct fit’ when their lines-of-business overlap, and ‘indirect fit’ when the venture is a customer or a supplier of the corporation. Gompers and Lerner utilize observed investments to label a CVC programme ‘strategic’. This is fundamentally different from classifying a programme according to its declared goals. The latter is an ex ante measure of firms' intent while the former is an ex post measure collapsing firm's intended behaviour along with entrepreneurs' preferences and actions.

The value created, or value-added, to the venture is operationalized using CEO response to three items: ‘This investor has provided us with valuable value-sharing support in addition to the financing,’ ‘The value-adding support provided by this investor has been critical to our success,’ and ‘We are very happy about having this investor.’

McNally reports the ability to assist spin-out from the corporation is associated with the highest satisfaction level. However, he notes only two out of the 23 respondents pursued this strategy.

Birkanshaw et al. ( 2002 ) define ‘perceived strategic value’ as survey response to questions regarding programmes' ability to: (1) increase the demand for corporate products or technologies; (2) enhance corporate visibility; (3) create spin-outs; and (4) generate internal recognition for new venture creation. Investment output is defined as the number of programme's investments divided by its age. Lower closure rate is the percentage of investments in programme's portfolio that have been closed down.

The authors define Tobin's q as the market valuation over the value of tangible assets.

The authors find only seven out of 998 CVC investments result in investing-firms' patents citing portfolio companies. The dependent variable may fail to reflect the learning benefits associated with CVC due to (1) a citation lag that averages three-to-four years (Hall et al., 2001 ), and (2) the fact that CVC has boomed in 1999 and 2000.

Some of the earlier work on CVC provides anecdotal evidence of entrepreneurs’ dis-inclination to approach firms in a competing line of business (Rind, 1981 ; Hardymon, DeNino and Malcolm, 1983 ).

Gompers ( 2002 ) investigates the probability of an investment between a firm and a venture in related industry (which he defines as a ‘strategic fit’). He sets the earliest stage, the start-up-stage, as a benchmark and reports that development- and beta-stages are more likely to see an investment involving a firm and a venture of the same industry, but shipping-stages, profitable-stages, and restart-stages are equally likely to see such an investment. Note, these patterns may be consistent with Dushnitsky ( 2004 ) but may also result due to heterogeneous investor stage preferences or measurement errors.

The implications of stricter requirements for board-independence are two-fold. First, firms have less flexibility in offering option-based compensation to board members. This significantly diminishes the ability of a cash-constrained venture to recruit prominent personal and industry experts (Ernst & Young, 2002 , 2004 ). Second, National Association of Directors' best practice requires that a professional director will not serve on more than six boards. This, in turn, may constrain venture capitalists' abilities to sit on portfolio companies’ boards and provide them with advice.

• About Oxford Academic
• Publish journals with us
• University press partners
• What we publish
• New features  
• Open access
• Institutional account management
• Rights and permissions
• Get help with access
• Accessibility
• Advertising
• Media enquiries
• Oxford University Press
• Oxford Languages
• University of Oxford

Oxford University Press is a department of the University of Oxford. It furthers the University's objective of excellence in research, scholarship, and education by publishing worldwide

• Copyright © 2024 Oxford University Press
• Cookie settings
• Cookie policy
• Privacy policy
• Legal notice

This Feature Is Available To Subscribers Only

Sign In or Create an Account

This PDF is available to Subscribers Only

For full access to this pdf, sign in to an existing account, or purchase an annual subscription.

• Architecture and Design
• Asian and Pacific Studies
• Business and Economics
• Classical and Ancient Near Eastern Studies
• Computer Sciences
• Cultural Studies
• Engineering
• General Interest
• Geosciences
• Industrial Chemistry
• Islamic and Middle Eastern Studies
• Jewish Studies
• Library and Information Science, Book Studies
• Life Sciences
• Linguistics and Semiotics
• Literary Studies
• Materials Sciences
• Mathematics
• Social Sciences
• Sports and Recreation
• Theology and Religion
• Publish your article
• The role of authors
• Promoting your article
• Abstracting & indexing
• Publishing Ethics
• Why publish with De Gruyter
• How to publish with De Gruyter
• Our book series
• Our subject areas
• Your digital product at De Gruyter
• Contribute to our reference works
• Product information
• Tools & resources
• Product Information
• Promotional Materials
• Orders and Inquiries
• FAQ for Library Suppliers and Book Sellers
• Repository Policy
• Free access policy
• Open Access agreements
• Database portals
• For Authors
• Customer service
• People + Culture
• Journal Management
• How to join us
• Working at De Gruyter
• Mission & Vision
• De Gruyter Foundation
• De Gruyter Ebound
• Our Responsibility
• Partner publishers

Your purchase has been completed. Your documents are now available to view.

The Venture Capital Feedback Cycle: A Critical Review and Future Directions

A framework of the venture capital (VC) process, encompassing the (1) pre-investment phase, (2) management phase, (3) exit phase, and the interrelationships between them was developed into a cycle using the exit phase in a feedback loop. The review of 166 articles from top-tier, Grade 4, journals suggests that most prominent Entrepreneurial & Management (E&M) literature assesses the VC operating environment, and the managerial expertise and skills of both VC firms and entrepreneurs independently. Finance Literature, however, centers its independent analysis on contracts, risk, returns and VC governance. A network analysis follows comparing E&M and Finance literature VC research agendas by country, author, institution, and journal. Finally, the manuscript identifies trends and future areas for VC cycle research by comparing and exploring the current state and progress of the VC cycle in Entrepreneurial literature.

Linkage-exploring review matrix of venture capital articles between 2000 and 2017.

List of reviewed articles about venture capital between 2000 and 2017.

Ahlstrom, D., and G. D. Bruton. 2006. “Venture Capital in Emerging Economies: Networks and Institutional Change.” Entrepreneurship Theory and Practice 30: 299–320. 10.1111/j.1540-6520.2006.00122.x Search in Google Scholar

Alperovych, Y., G. Hübner, and F. Lobet. 2015. “How Does Governmental versus Private Venture Capital Backing Affect a Firm’s Efficiency? Evidence from Belgium.” Journal of Business Venturing 30: 508–25. 10.1016/j.jbusvent.2014.11.001 Search in Google Scholar

Baldi, F., D. Baglieri, and F. Corea. 2015. “Balancing Risk and Learning Opportunities in Corporate Venture Capital Investments: Evidence from the Biopharmaceutical Industry.” Entrepreneurship Research Journal 5(3): 221–50. 10.1515/erj-2014-0036 Search in Google Scholar

Baron, J., D. Burton, and M. Hannan. 1996. “The Road Taken: Origins and Evolution of Employment Systems in Emerging Companies.” Industrial and Corporate Change 5: 239–75. 10.1093/icc/5.2.239 Search in Google Scholar

BarNir, A. 2012. “Starting Technologically Innovative Ventures: Reasons, Human Capital, and Gender.” Management Decision 50: 399–419. 10.1108/00251741211216205 Search in Google Scholar

Baum, J. A., and B. S. Silverman. 2004. “Picking Winners or Building Them? Alliance, Intellectual, and Human Capital as Selection Criteria in Venture Financing and Performance of Biotechnology Startups.” Journal of Business Venturing 19: 411–36. 10.1016/S0883-9026(03)00038-7 Search in Google Scholar

Benson, D. F., J. C. Brau, J. Cicon, and S. P. Ferris. 2015. “Strategically Camouflaged Corporate Governance in IPOs: Entrepreneurial Masking and Impression Management.” Journal of Business Venturing 30: 839–64. 10.1016/j.jbusvent.2015.03.001 Search in Google Scholar

Berger, A. N., and G. F Udell. 1999. “The Economics of Small Business Finance: The Roles of Private Equity and Debt Markets in the Financial Growth Cycle.” Journal of Banking and Finance 22: 613–73. 10.1016/S0378-4266(98)00038-7 Search in Google Scholar

Bernstein, S., X. Giroud, and R. Townsend. 2016. “The Impact of Venture Capital Monitoring.” Journal of Finance 71: 1591–622. 10.1111/jofi.12370 Search in Google Scholar

Bertoni, F., M. G. Colombo, and L. Grilli. 2011. “Venture Capital Financing and the Growth of High-Tech Start-Ups: Disentangling Treatment from Selection Effects.” Research Policy 40(7): 1028–43. 10.1016/j.respol.2011.03.008 Search in Google Scholar

Block, J. H., G. De Vries, J. H. Schumann, and P. Sandner. 2014. “Trademarks and Venture Capital Valuation.” Journal of Business Venturing 29: 525–42. 10.1016/j.jbusvent.2013.07.006 Search in Google Scholar

Bottazzi, L., M. Da Rin, and T. Hellmann. 2008. “Who are the Active Investors?: Evidence from Venture Capital.” Journal of Financial Economics 89: 488–512. 10.1016/j.jfineco.2007.09.003 Search in Google Scholar

Bottazzi, L., M. Da Rin, and T. Hellmann. 2016. “The Importance of Trust for Investment: Evidence from Venture Capital.” The Review of Financial Studies 29: 2283–318. 10.3386/w16923 Search in Google Scholar

Brander, J. A., Q. Du, and T. Hellmann. 2015. “The Effects of Government-Sponsored Venture Capital: International Evidence.” Review of Finance 19: 571–618. 10.3386/w16521 Search in Google Scholar

Bruton, G. D., D. Ahlstrom, and T. Puky. 2009. “Institutional Differences and the Development of Entrepreneurial Ventures: A Comparison of the Venture Capital Industries in Latin America and Asia.” Journal of International Business Studies 40: 762–78. 10.1057/jibs.2009.3 Search in Google Scholar

Bruton, G. D., I. Filatotchev, and S. Chahine. 2010. “Governance, Ownership Structure, and Performance of IPO Firms: the Impact of Different Types of Private Equity Investors and Institutional Environments.” Strategic Mnagement Journal 31(5): 491–509. 10.1002/smj.822 Search in Google Scholar

Buchner, A., A. Mohamed, and A. Schwienbacher. 2017. “Diversification, Risk, and Returns in Venture Capital.” Journal of Business Venturing 32: 519–35. 10.1016/j.jbusvent.2017.05.005 Search in Google Scholar

Cancino, C., J. Merigó, J. P. Torres, and D. Díaz. 2018. “A Bibliometric Analysis of Venture Capital Research.” Journal of Economics, Finance and Administrative Science . https://doi.org/10.1108/JEFAS-01-2018-0016 . 10.1108/JEFAS-01-2018-0016 Search in Google Scholar

Chang, S. J. 2004. “Venture Capital Financing, Strategic Alliances, and the Initial Public Offerings of Internet Startups.” Journal of Business Venturing 19: 721–41. 10.1016/j.jbusvent.2003.03.002 Search in Google Scholar

Cochrane, J. H. 2005. “The Risk and Return of Venture Capital.” Journal of Financial Economics 75: 3–52. 10.3386/w8066 Search in Google Scholar

Cumming, D., and S. Johan. 2017. “The Problems with and Promise of Entrepreneurial Finance.” Strategic Entrepreneurship Journal 11: 357–70. 10.1002/sej.1265 Search in Google Scholar

Cumming, D. 2008. “Contracts and Exits in Venture Capital Finance.” Review of Financial Studies 21: 1947–82. 10.1093/rfs/hhn072 Search in Google Scholar

Cumming, D., and N. Dai. 2010. “Local Bias in Venture Capital Investments.” Journal of Empirical Finance 17: 362–80. 10.1016/j.jempfin.2009.11.001 Search in Google Scholar

Cumming, D., D. Schmidt, and U. Walz. 2010. “Legality and Venture Capital Governance around the World.” Journal of Business Venturing 25: 54–72. 10.1016/j.jbusvent.2008.07.001 Search in Google Scholar

Cumming, D. J. 2005a. “Capital Structure in Venture Finance.” Journal of Corporate Finance 11: 550–85. 10.1016/j.jcorpfin.2004.02.004 Search in Google Scholar

Cumming, D. J. 2005b. “Agency Costs, Institutions, Learning, and Taxation in Venture Capital Contracting.” Journal of Business Venturing 20: 573–622. 10.1016/j.jbusvent.2003.07.001 Search in Google Scholar

Dai, N., and S.K. Kassicieh. 2012. “Cross-Border Venture Capital Investment in Asia: Selection and Performance.” Journal of Business Venturing 27: 666–84. 10.1016/j.jbusvent.2011.04.004 Search in Google Scholar

Davila, A., G. Foster, and M. Gupta. 2003. “Venture Capital Financing and the Growth of Startup Firms.” Journal of Business Venturing 18: 689–708. 10.1016/S0883-9026(02)00127-1 Search in Google Scholar

De Carolis, D. M., B. E. Litzky, and K. A. Eddleston. 2009. “Why Networks Enhance the Progress of New Venture Creation: the Influence of Social Capital and Cognition.” Entrepreneurship Theory and Practice 33: 527–45. 10.1111/j.1540-6520.2009.00302.x Search in Google Scholar

De Clercq, D., and D. Dimov. 2008. “Internal Knowledge Development and External Knowledge Access in Venture Capital Investment Performance.” Journal of Management Studies 45: 585–612. 10.1111/j.1467-6486.2007.00747.x Search in Google Scholar

De Prijcker, S., S. Manigart, V. Collewaert, and T. Vanacker. 2018. “Relocation to Get Venture Capital: A Resource Dependence Perspective.” Entrepreneurship, Theory and Practice Forthcoming . https://doi.org/10.1177/1042258717739003 . 10.1177/1042258717739003 Search in Google Scholar

DeTienne, D. R., A. McKelvie, and G. N. Chandler. 2015. “Making Sense of Entrepreneurial Exit Strategies: A Typology and Test.” Journal of Business Venturing 30: 255–72. 10.1016/j.jbusvent.2014.07.007 Search in Google Scholar

Detienne, D., A. McKelvie, and G. Chandler. 2015. “Making Sense of Entrepreneurial Exit Strategies: A Typology and Test.” Journal of Business Venturing 30: 255–72. 10.1016/j.jbusvent.2014.07.007 Search in Google Scholar

Dimov, D., and D. De Clercq. 2006. “Venture Capital Investment Strategy and Portfolio Failure Rate: A Longitudinal Study.” Entrepreneurship Theory & Practice 30: 207–23. 10.1111/j.1540-6520.2006.00118.x Search in Google Scholar

Dimov, D., and E. Gedajlovic. 2010. “A Property Rights Perspective on Venture Capital Investment Decisions.” Journal of Management Studies 47: 1248–71. 10.1111/j.1467-6486.2009.00905.x Search in Google Scholar

Dimov, D., and P. Martin de Holan. 2010. “Firm Experience and Market Entry by Venture Capital Firms, 1962–2004.” Journal of Management Studies 47: 130–61. 10.1111/j.1467-6486.2009.00869.x Search in Google Scholar

Dimov, D., and H. Milanov. 2010. “The Interplay of Need and Opportunity in Venture Capital Syndication.” Journal of Business Venturing 25: 331–48. 10.1016/j.jbusvent.2009.01.002 Search in Google Scholar

Ding, Z., K. Au, and F. Chiang. 2015. “Social Trust and Angel Investors’ Decisions: A Multilevel Analysis across Nations.” Journal of Business Venturing 30: 307–21. 10.1016/j.jbusvent.2014.08.003 Search in Google Scholar

Drover, W., L. Busenitz, S. Matusik, D. Townsend, A. Anglin, and G. Dushnitsky. 2017. “A Review and Road Map of Entrepreneurial Equity Financing Research: Venture Capital, Corporate Venture Capital, Angel Investment, Crowdfunding, and Accelerators.” Journal of Management 43(6): 1820–53. 10.1177/0149206317690584 Search in Google Scholar

Dushnitsky, G., and M. J. Lenox. 2006. “When Does Corporate Venture Capital Investment Create Firm Value?” Journal of Business Venturing 21: 753–72. 10.1016/j.jbusvent.2005.04.012 Search in Google Scholar

Dutta, S., and T. Folta. 2016. “A Comparison of the Effect of Angels and Venture Capitalists on Innovation and Value Creation.” Journal of Business Venturing 31: 39–54. 10.1016/j.jbusvent.2015.08.003 Search in Google Scholar

Ewens, M., and M. Rhodes-Kropf. 2015. “Is a VC Partnership Greater than the Sum of Its Partners?” Journal of Finance 70: 1081–113. 10.3386/w19120 Search in Google Scholar

Field, L., and G. Hanka. 2001. “The Expiration of IPO Share Lockups.” The Journal of Finance 56: 471–500. 10.1111/0022-1082.00334 Search in Google Scholar

Garg, S., and K. Eisenhardt. 2017. “Unpacking the CEO–Board Relationship: How Strategy Making Happens in Entrepreneurial Firms.” Academy of Management Journal 60: 1828–58. 10.5465/amj.2014.0599 Search in Google Scholar

Gerasymenko, V., and J. D. Arthurs. 2014. “New Insights into Venture Capitalists’ Activity: IPO and Time-to-Exit Forecast as Antecedents of Their Post-Investment Involvement.” Journal of Business Venturing 29: 405–20. 10.1016/j.jbusvent.2013.06.003 Search in Google Scholar

Giancaspro, M. 2017. “Is a ‘Smart Contract’ Really a Smart Idea? Insights from a Legal Perspective.” Computer Law & Security Review 33(6): 825–35. 10.1016/j.clsr.2017.05.007 Search in Google Scholar

Ginsberg, A., and N. Ventrakaman. 1985. “Contingency Perspectives of Organizational Strategy: A Critical Review of the Empirical Research.” Academy of Management Review 10: 421–34. 10.5465/amr.1985.4278950 Search in Google Scholar

Ginsberg, A., I. Hasan, and C. L. Tucci. 2011. “Unpacking the Effects of Corporate Venture Capital Investor Ties on the Reduction of Price Discounting among IPO Firms.” Entrepreneurship Research Journal 1(2): 1–29. 10.2202/2157-5665.1010 Search in Google Scholar

Gompers, P., A. Kovner, J. Lerner, and D. Scharfstein. 2008. “Venture Capital Investment Cycles: The Impact of Public Markets.” Journal of Financial Economics 87: 1–23. 10.3386/w11385 Search in Google Scholar

Gompers, P., A. Kovner, J. Lerner, and D. Scharfstein. 2010. “Performance Persistence in Entrepreneurship.” Journal of Financial Economics 96: 18–32. 10.1016/j.jfineco.2009.11.001 Search in Google Scholar

Gompers, P., and J. Lerner. 1999. The Venture Capital Cycle , 1st ed. Cambridge MA: MIT Press”. Search in Google Scholar

Gompers, P., and J. Lerner. 2001. “The Venture Capital Revolution.” Journal of Economic Perspective 15(2): 145–68. 10.1257/jep.15.2.145 Search in Google Scholar

Grossman, S., and O. Hart. 1986. “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration.” Journal of Political Economy 94: 691–719. 10.1086/261404 Search in Google Scholar

Guerini, M, and A. Quas. 2016. “Governmental Venture Capital in Europe: Screening and Certification.” Journal of Business Venturing 31: 175–95. 10.1016/j.jbusvent.2015.10.001 Search in Google Scholar

Guler, I., and M. Guillen. 2010. “Institutions and the Internationalization of US Venture Capital Firms.” Journal of International Business Studies 41: 185–205. 10.1057/jibs.2009.35 Search in Google Scholar

Helfat, C., and M. Peteraf. 2015. “Managerial Cognitive Capabilities and the Microfoundations of Dynamic Capabilities.” Strategic Management Journal 36: 831–50. 10.1002/smj.2247 Search in Google Scholar

Hallen, B. L. 2008. “The Causes and Consequences of the Initial Network Positions of New Organizations: From Whom Do Entrepreneurs Receive Investments?” Administrative Science Quarterly 53(4): 685–718. 10.2189/asqu.53.4.685 Search in Google Scholar

Hallen, B. L., and K. M. Eisenhardt. 2012. “Catalyzing Strategies and Efficient Tie Formation: How Entrepreneurial Firms Obtain Investment Ties.” Academy of Management Journal 55(1): 35–70. 10.5465/amj.2009.0620 Search in Google Scholar

Hallen, B. L., R. Katila, and J. D. Rosenberger. 2014. “How Do Social Defenses Work? A Resource-Dependence Lens on Technology Ventures, Venture Capital Investors, and Corporate Relationships.” Academy of Management Journal 57: 1078–101. 10.5465/amj.2012.0003 Search in Google Scholar

Hellman, T., and M. Puri. 2000. “The Interaction between Product Market and Financing Strategy: The Role of Venture Capital.” Review of Financial Studies 13: 959–84. 10.1093/rfs/13.4.959 Search in Google Scholar

Hochberg, Y., A. Ljungqvist, and Y. Lu. 2010. “Networking as a Barrier to Entry and the Competitive Supply of Venture Capital.” Journal of Finance 65:: 829–59. 10.1111/j.1540-6261.2010.01554.x Search in Google Scholar

Hsu, D., E. Roberts, and C. Eesley. 2007. “Entrepreneurs from Technology-based Universities: Evidence from MIT.” Research Policy 36: 768–88. 10.1016/j.respol.2007.03.001 Search in Google Scholar

Hsu, D. H. 2007. “Experienced Entrepreneurial Founders, Organizational Capital, and Venture Capital Funding.” Research Policy 36: 722–41. 10.1016/j.respol.2007.02.022 Search in Google Scholar

Jääskeläinen, M. 2012. “Venture Capital Syndication: Synthesis and Future Directions.” International Journal of Management Review 14: 444–63. 10.1111/j.1468-2370.2011.00325.x Search in Google Scholar

Kaplan, S. N., M. M. Klebanov, and M. Sorensen. 2012. “Which CEO Characteristics and Abilities Matter?” The Journal of Finance 67: 973–1007. 10.3386/w14195 Search in Google Scholar

Kaplan, S. N., and P. Stromberg. 2003. “Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts.” Review of Economic Studies 70: 281–315. 10.3386/w7660 Search in Google Scholar

Kaplan, S. N., and P. Stromberg. 2004. “Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses.” Journal of Finance 59: 2177–210. 10.3386/w8764 Search in Google Scholar

Keil, T., E. Autio, and G. George. 2008. “Corporate Venture Capital, Disembodied Experimentation and Capability Development.” Journal of Management Studies 45: 1475–505. 10.1111/j.1467-6486.2008.00806.x Search in Google Scholar

Krishnan, C. N. V., V. I. Ivanov, R. W. Masulis, and A. K. Singh. 2011. “Venture Capital Reputation, Post-IPO Performance, and Corporate Governance.” Journal of Financial and Quantitative Analysis 46: 1295–333. 10.1017/S0022109011000251 Search in Google Scholar

Lee, P. M., and S. Wahal. 2004. “Grandstanding, Certification and the Underpricing of Venture Capital Backed IPOs.” Journal of Financial Economics 73: 375–407. 10.1016/j.jfineco.2003.09.003 Search in Google Scholar

Lerner, J. 2009. Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed–and What to Do about It . US: Princeton University Press. 10.1515/9781400831630 Search in Google Scholar

Li, Y., W. M. Zheng, Z. Cui, and T. Zhang. 2018. “Face Recognition Based on Recurrent Regression Neural Network.” Neurocomputing 297: 50–58. 10.1016/j.neucom.2018.02.037 Search in Google Scholar

Lockett, A., G. Murray, and M. Wright. 2002. “Do UK Venture Capitalists Still Have a Bias Against Investment in New Technology Firms.” Research Policy 31: 1009–30. 10.1016/S0048-7333(01)00174-3 Search in Google Scholar

Manigart, S., K. De Waele, M. Wright, K. Robbie, P. Desbrieres, H. J. Sapienza, and A. Beekman. 2002. “Determinants of Required Return in Venture Capital Investments: A Five-Country Study.” Journal of Business Venturing 17: 291–312. 10.1016/S0883-9026(00)00067-7 Search in Google Scholar

Manigart, S., and M. Wright. 2013. “Venture Capital Investors and Portfolio Firms.” Foundations and Trends® in Entrepreneurship 9(4–5): 365–570. 10.1561/0300000040 Search in Google Scholar

Mann, R. J., and T. W. Sager. 2007. “Patents, Venture Capital, and Software Start-Ups.” Research Policy 36: 193–208. 10.1016/j.respol.2006.10.002 Search in Google Scholar

Martyn, J. 1964. “Bibliographic Coupling.” Journal of Documentation 20: 236. 10.1108/eb026352 Search in Google Scholar

Mason, C. M., and R. T. Harrison. 2002. “Is It Worth It? the Rates of Return from Informal Venture Capital Investments.” Journal of Business Venturing 17: 211–36. 10.1016/S0883-9026(00)00060-4 Search in Google Scholar

Maula, M. V., E. Autio, and G. C. Murray. 2009. “Corporate Venture Capital and the Balance of Risks and Rewards for Portfolio Companies.” Journal of Business Venturing 24: 274–86. 10.1016/j.jbusvent.2008.10.012 Search in Google Scholar

Mishra, C. S., and R. K. Zachary. 2015. “The Theory of Entrepreneurship.” Entrepreneurship Research Journal 5(4): 251–68. 10.1057/9781137371461 Search in Google Scholar

Ozmel, U., J. Reuer, and R. Gulati. 2013. “Signals Across Multiple Networks: How Venture Capital and Alliance Networks Affect Interorganizational Collaboration.” Academy of Management Journal 56: 852–66. 10.5465/amj.2009.0549 Search in Google Scholar

Pahnke, C., E. R. McDonald, D. Wang, and B. Hallen. 2015. “Exposed: Venture Capital, Competitor Ties, and Entrepreneurial Innovation.” Academy of Management Journal 58: 1334–60. 10.5465/amj.2012.0777 Search in Google Scholar

Pahnke, E. C., R. Katila, and K. M. Eisenhardt. 2015. “Who Takes You to the Dance? How Partners’ Institutional Logics Influence Innovation in Young Firms.” Administrative science Quarterly 60: 596–633. 10.1177/0001839215592913 Search in Google Scholar

Puri, M., and R. Zarutskie. 2012. “On the Life Cycle Dynamics of Venture-Capital-and Non-Venture-Capital-Financed Firms.” The Journal of Finance 67: 2247–93. 10.1111/j.1540-6261.2012.01786.x Search in Google Scholar

Rosenbusch, N., J. Brinckmann, and V. Müller. 2013. “Does Acquiring Venture Capital Pay off for the Funded Firms? A Meta-analysis on the Relationship between Venture Capital Investment and Funded Firm Financial Performance.” Journal of Business Venturing 28: 335–53. 10.1016/j.jbusvent.2012.04.002 Search in Google Scholar

Sahlman, W. A. 1990. “The Structure and Governance of Venture-Capital Organizations.” Journal of Financial Economics 27: 473–521. 10.1016/0304-405X(90)90065-8 Search in Google Scholar

Samila, S., and O. Sorenson. 2011. “Venture Capital, Entrepreneurship, and Economic Growth.” The Review of Economics and Statistics 93(1): 338–49. 10.1162/REST_a_00066 Search in Google Scholar

Sapienza, H. J., S. Manigart, and W. Vermier. 1996. “Venture Capitalist Governance and Value Added in Four Countries.” Journal of Business Venturing 11: 439–69. 10.1016/S0883-9026(96)00052-3 Search in Google Scholar

Schmidt, K. M. 2003. “Convertible Securities and Venture Capital Finance.” The Journal of Finance 58: 1139–66. 10.1111/1540-6261.00561 Search in Google Scholar

Shepherd, D. A., R. Ettenson, and A. Crouch. 2000. “New Venture Strategy and Profitability: A Venture Capitalist’s Assessment.” Journal of Business Venturing 15: 449–67. 10.1016/S0883-9026(98)00007-X Search in Google Scholar

Smolarski, J., and C. Kut. 2011. “The Impact of Venture Capital Financing Method on SME Performance and Internationalization.” International Entrepreneurship and Management Journal 7: 39–55. 10.1007/s11365-009-0128-1 Search in Google Scholar

Sorensen, M. 2007. “How Smart Is Smart Money? A Two-Sided Matching Model of Venture Capital.” The Journal of Finance 62: 2725–62. 10.1111/j.1540-6261.2007.01291.x Search in Google Scholar

Stuart, T. E., H. Hoang, and R. C. Hybels. 1999. “Interorganizational Endorsements and the Performance of Entrepreneurial Ventures.” Administrative Science Quarterly 44: 315–49. 10.2307/2666998 Search in Google Scholar

Titus, V., J. M. House, and J. G. Covin. 2017. “The Influence of Exploration on External Corporate Venturing Activity.” Journal of Management 43: 1609–30. 10.1177/0149206314562426 Search in Google Scholar

Ueda, M. 2004. “Banks versus Venture Capital: Project Evaluation, Screening, and Expropriation.” The Journal of Finance 59: 601–21. 10.1111/j.1540-6261.2004.00643.x Search in Google Scholar

Ughetto, E. 2010. “Assessing the Contribution to Innovation of Private Equity Investors: A Study on European Buyouts.” Research Policy 39: 126–40. 10.1016/j.respol.2009.11.009 Search in Google Scholar

Vanacker T., V. Collewaert, and I. Paeleman. 2013. “The Relationship Between Slack Resources and the Performance of Entrepreneurial Firms: The Role of Venture Capital and Angel Investors.” Journal of Management Studies 50: 1070–96. 10.1111/joms.12026 Search in Google Scholar

Von Burg, U., and M. Kenney. 2000. “Venture Capital and the Birth of the Local Area Networking Industry.” Research Policy 29: 1135–55. 10.1016/S0048-7333(99)00072-4 Search in Google Scholar

Wallmeroth, J., P. Wirtz, and A. P. Groh. 2018. “Venture Capital, Angel Financing, and Crowdfunding of Entrepreneurial Ventures: A Literature Review.” Foundations and Trends® in Entrepreneurship 14(1): 1–129. 10.1561/0300000066 Search in Google Scholar

Washington, M., and E. J. Zajac. 2005. “Status Evolution and Competition: Theory and Evidence.” Academy of Management Journal 48: 282–96. 10.5465/amj.2005.16928408 Search in Google Scholar

Wright, M., A. Lockett, B. Clarysse, and M. Binks. 2006. “University Spin-Out Companies and Venture Capital.” Research Policy 35: 481–501. 10.1016/j.respol.2006.01.005 Search in Google Scholar

Wright, M., K. Robbie, and C. Ennew. 1997. “Venture Capitalists and Serial Entrepreneurs.” Journal of Business Venturing 12: 227–49. 10.1016/S0883-9026(96)06115-0 Search in Google Scholar

Wry, T., M. Lounsbury, and P. Jennings. 2014. “Hybrid Vigor: Securing Venture Capital by Spanning Categories in Nanotechnology.” Academy of Management Journal 57: 1309–33. 10.5465/amj.2011.0588 Search in Google Scholar

Zhang, P. 2014. “Understanding Diversification Strategy in Venture Capital Market.” Entrepreneurship Research Journal 4(3): 277–96. 10.1515/erj-2013-0058 Search in Google Scholar

Zhang, L., A. K. Gupta, and B. L. Hallen. 2017. “The Conditional Importance of Prior Ties: A Group-Level Analysis of Venture Capital Syndication.” Academy of Management Journal 60: 1360–86. 10.5465/amj.2013.1088 Search in Google Scholar

© 2020 Walter de Gruyter GmbH, Berlin/Boston

• X / Twitter

Supplementary Materials

Please login or register with De Gruyter to order this product.

Journal and Issue

Articles in the same issue.

Corporate Venture Capital

• Living reference work entry
• First Online: 23 September 2023
• Cite this living reference work entry

• Gary Dushnitsky 3 &

197 Accesses

Corporate venturing ; Established firm ; Startups ; Strategic objective

Description/Definition

Corporate venture capital (CVC) is defined as equity investments in privately held entrepreneurial ventures by established firms. CVC investors are an indispensable part of the financing landscape for contemporary entrepreneurial ventures. Corporate venture capital activities possess three common factors that differentiate them from other firm investments. First, while financial returns are important, CVC activities are often motivated by a broad set of strategic objectives. Second, the funded ventures are independent from the investing firm and often do not have prior overlap in terms of employees or intellectual property. Third, the investing corporation typically holds a minority equity stake in the venture.

The phenomenon involves the following players: the parent firm (“corporation” hereafter), the corporate venture capital unit, and the entrepreneurial ventures. The corporation...

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Institutional subscriptions

Alvarez-Garrido E, Dushnitsky G (2012) Publications and patents in corporate venture–backed biotech. Nat Biotechnol 31(6):295–297

Google Scholar  

Alvarez-Garrido E, Dushnitsky G (2016) Are entrepreneurial venture’s innovation rates sensitive to investor complementary assets? Comparing biotech ventures backed by corporate and independent VCs. Strateg Manag J 37(5):819–834

Article   Google Scholar  

Basu S, Phelps C, Kotha S (2011) Towards understanding who makes corporate venture capital investments and why. J Bus Ventur 26(2):153–171

Basu S, Phelps C, Kotha S (2016) Search and integration in external venturing: an inductive examination of corporate venture capital units: search and integration in external venturing. Strateg Entrep J 10(2):129–152

Belderbos R, Jacob J, Lokshin B (2018) Corporate venture capital investments and technological performance: geographic diversity and the interplay with technology alliances. J Bus Ventur 33(1):20–34

Bendig D, Hensellek S, Schulte J (2023) Beneficial, harmful, or both? Effects of corporate venture capital and alliance activity on product recalls. Entrepreneurship Theory Pract, forthcoming

Benson D, Ziedonis RH (2009) Corporate venture capital as a window on new technologies: implications for the performance of corporate investors when acquiring startups. Organ Sci 20(2):329–351

Benson D, Ziedonis RH (2010) Corporate venture capital and the returns to acquiring portfolio companies. J Financ Econ 98(3):478–499

Block Z, Ornati A (1987) Compensating corporate venture managers. J Bus Ventur 2(1):41–51

Cabral JJ, Francis BB, Kumar MVS (2021) The impact of managerial job security on corporate entrepreneurship: evidence from corporate venture capital programs. Strateg Entrep J 15(1):28–48

Ceccagnoli M, Higgins MJ, Kang HD (2018) Corporate venture capital as a real option in the markets for technology. Strateg Manag J 39(13):3355–3381

Chemmanur TJ, Loutskina E, Tian X (2014) Corporate venture capital, value creation, and innovation. Rev Financ Stud 27(8):2434–2473

Chen T, Chen J, Miller D, Le Breton-Miller I, Chen M (2023) Corporate venture capital and interfirm rivalry: a competitive dynamics perspective. Strateg Entrep J 17(1):210–236

Colombo MG, Shafi K (2016) Swimming with sharks in Europe: when are they dangerous and what can new ventures do to defend themselves? Strateg Manag J 37(11):2307–2322

Colombo MG, Grilli L, Piva E (2006) In search of complementary assets: the determinants of alliance formation of high-tech start-ups. Res Policy 35(8):1166–1199

Da Gbadji LAG, Gailly B, Schwienbacher A (2015) International analysis of venture capital programs of large corporations and financial institutions. Entrep Theory Pract 39(5):1213–1245

Di Lorenzo F, van de Vrande V (2019) Tapping into the knowledge of incumbents: the role of corporate venture capital investments and inventor mobility. Strateg Entrep J 13(1):24–46

Dokko G, Gaba V (2012) Venturing into new territory: career experiences of corporate venture capital managers and practice variation. Acad Manag J 55(3):563–583

Dushnitsky G (2012) Corporate venture capital in the 21st century: an integral part of firms’ innovation toolkit. In: Cumming D (ed) The Oxford handbook of venture capital. Oxford University Press, Oxford, UK, pp 387–434

Dushnitsky G, Kang S (2018) Seeding a star or constructing a constellation? Corporate venturing as an ecosystem strategy, Academy of Management Proceedings

Dushnitsky G, Lavie D (2010) How alliance formation shapes corporate venture capital investment in the software industry: a resource-based perspective. Strateg Entrep J 4(1):22–48

Dushnitsky G, Lenox MJ (2005a) When do firms undertake R&D by investing in new ventures? Strateg Manag J 26(10):947–965

Dushnitsky G, Lenox MJ (2005b) When do incumbents learn from entrepreneurial ventures? Corporate venture capital and investing firm innovation rates. Res Policy 34(5):615–639

Dushnitsky G, Lenox MJ (2006) When does corporate venture capital investment create firm value? J Bus Ventur 21(6):753–772

Dushnitsky G, Shapira Z (2010) Entrepreneurial finance meets organizational reality: comparing investment practices and performance of corporate and independent venture capitalists. Strateg Manag J 31(9):990–1017

Dushnitsky G, Shaver JM (2009) Limitations to interorganizational knowledge acquisition: the paradox of corporate venture capital. Strateg Manag J 30(10):1045–1064

Dushnitsky G, Yu L, Lu J (2021) Corporate Venture Capital Research: Literature Review and Future Directions. Journal of Management World 37(7):198–216

Dushnitsky G, Yu L (2022) Why do incumbents fund startups? A study of the antecedents of corporate venture Capital in China. Res Policy 51(3):104463

Fulghieri P, Sevilir M (2009) Organization and financing of innovation, and the choice between corporate and independent venture capital. J Financ Quant Anal 44(6):1291–1321

Gaba V, Bhattacharya S (2012) Aspirations, innovation, and corporate venture capital: a behavioral perspective. Strateg Entrep J 6(2):178–199

Gaba V, Dokko G (2016) Learning to let go: social influence, learning, and the abandonment of corporate venture capital practices. Strateg Manag J 37(8):1558–1577

Gaba V, Meyer AD (2008) Crossing the organizational species barrier: how venture capital practices infiltrated the information technology sector. Acad Manag J 51(5):976–998

Gompers PA (2002) Corporations and the financing of innovation: the corporate venturing experience. Econ Rev-Federal Reserve Bank of Atlanta 87(4):1–18

Hallen BL, Katila R, Rosenberger JD (2014) How do social defenses work? A resource-dependence lens on technology ventures, venture capital investors, and corporate relationships. Acad Manag J 57(4):1078–1101

Hellmann T (2002) A theory of strategic venture investing. J Financ Econ 64(2):285–314

Hill SA, Birkinshaw J (2008) Strategy–organization configurations in corporate venture units: impact on performance and survival. J Bus Ventur 23(4):423–444

Hill SA, Birkinshaw J (2014) Ambidexterity and survival in corporate venture units. J Manag 40(7):1899–1931

Kann A (2001) Strategic venture capital investing by corporations: a framework for structuring and valuing corporate venture capital programs. Dissertation. Stanford University

Katila R, Rosenberger JD, Eisenhardt KM (2008) Swimming with sharks: technology ventures, defense mechanisms and corporate relationships. Adm Sci Q 53(2):295–332

Keil T (2004) Building external corporate venturing capability. J Manag Stud 41(5):799–825

Keil T, Autio E, George G (2008) Corporate venture capital, disembodied experimentation and capability development. J Manag Stud 45(8):1475–1505

Kim K, Gopal A, Hoberg G (2016) Does product market competition drive CVC investment? Evidence from the U.S. IT industry. Inf Syst Res 27(2):259–281

Kim JY, Steensma HK, Park HD (2019) The influence of technological links, social ties, and incumbent firm opportunistic propensity on the formation of corporate venture capital deals. J Manag 45(4):1595–1622

Mathews RD (2006) Strategic alliances, equity stakes, and entry deterrence. J Financ Econ 80(1):35–79

Maula MVJ, Autio E, Murray GC (2009) Corporate venture capital and the balance of risks and rewards for portfolio companies. J Bus Ventur 24(3):274–286

Maula MVJ, Keil T, Zahra SA (2013) Top Management’s attention to discontinuous technological change: corporate venture capital as an alert mechanism. Organ Sci 24(3):926–947

Mohammadi A, Khashabi P (2021) Patent disclosure and venture financing: the impact of the American inventor’s protection act on corporate venture capital investments. Strateg Entrep J 15(1):73–97

Pahnke EC, Katila R, Eisenhardt KM (2015) Who takes you to the dance? How partners’ institutional logics influence innovation in young firms. Adm Sci Q 60(4):596–633

Paik Y, Woo H (2017) The effects of corporate venture capital, founder incumbency, and their interaction on entrepreneurial firms’ R&D investment strategies. Organ Sci 28(4):670–689

Park HD, Steensma HK (2012) When does corporate venture capital add value for new ventures? Strateg Manag J 33(1):1–22

Park HD, Steensma HK (2013) The selection and nurturing effects of corporate investors on new venture innovativeness. Strateg Entrep J 7(4):311–330

Polidoro F, Yang W (2021) Corporate investment relationships and the search for innovations: an examination of startups’ search shift toward incumbents. Organ Sci 32(4):909–939

Sahaym A, Steensma HK, Barden JQ (2010) The influence of R&D investment on the use of corporate venture capital: an industry-level analysis. J Bus Ventur 25(4):376–388

Siegel R, Siegel E, MacMillan IC (1988) Corporate venture capitalists: autonomy, obstacles, and performance. J Bus Ventur 3(3):233–247

Souitaris V, Zerbinati S (2014) How do corporate venture capitalists do deals? An exploration of corporate investment practices. Strateg Entrep J 8(4):321–348

Souitaris V, Zerbinati S, Liu G (2012) Which iron cage? Endo- and exoisomorphism in corporate venture capital programs. Acad Manag J 55(2):477–505

Sykes HB (1986) The anatomy of a corporate venturing program: factors influencing success. J Bus Ventur 1(3):275–293

Titus VK, Anderson BS (2018) Firm structure and environment as contingencies to the corporate venture capital-parent firm value relationship. Entrep Theory Pract 42(3):498–522

Titus V, House JM, Covin JG (2017) The influence of exploration on external corporate venturing activity. J Manag 43(5):1609–1630

Titus V, Parker O, Covin J (2020) Organizational aspirations and external venturing: the contingency of entrepreneurial orientation. Entrep Theory Pract 44(4):645–670

van Angeren J, Karunakaran A (2023) Anchored inferential learning: platform-specific uncertainty, venture capital investments by the platform owner, and the impact on complementors. Organ Sci 34(3):1027–1050

Van de Vrande V, Vanhaverbeke W (2013) How prior corporate venture capital investments shape technological alliances: a real options approach. Entrep Theory Pract 37(5):1019–1043

Van de Vrande V, Vanhaverbeke W, Duysters G (2009) External technology sourcing: the effect of uncertainty on governance mode choice. J Bus Ventur 24(1):62–80

Wadhwa A, Kotha S (2006) Knowledge creation through external venturing: evidence from the telecommunications equipment manufacturing industry. Acad Manag J 49(4):819–835

Wadhwa A, Phelps C, Kotha S (2016) Corporate venture capital portfolios and firm innovation. J Bus Ventur 31(1):95–112

Weber C, Bauke B, Raibulet V (2016) An empirical test of the relational view in the context of corporate venture capital. Strateg Entrep J 10(3):274–299

Winters TE, Murfin DL (1988) Venture capital investing for corporate development objectives. J Bus Ventur 3(3):207–222

Yang Y, Narayanan VK, De Carolis DM (2014) The relationship between portfolio diversification and firm value: the evidence from corporate venture capital activity: the relationship between portfolio diversification and firm value. Strateg Manag J 35(13):1993–2011

Download references

Author information

Authors and affiliations.

London Business School, London, UK

Gary Dushnitsky

Business School, Sun Yat-sen University, Shenzhen, China

You can also search for this author in PubMed   Google Scholar

Corresponding author

Correspondence to Gary Dushnitsky .

Editor information

Editors and affiliations.

Florida Atlantic University, Boca Raton, FL, USA

Douglas Cumming

Lancaster University Management School, Lancaster, UK

Benjamin Hammer

Rights and permissions

Reprints and permissions

Copyright information

© 2023 The Author(s), under exclusive licence to Springer Nature Switzerland AG

About this entry

Cite this entry.

Dushnitsky, G., Yu, L. (2023). Corporate Venture Capital. In: Cumming, D., Hammer, B. (eds) The Palgrave Encyclopedia of Private Equity. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-38738-9_29-1

Download citation

DOI : https://doi.org/10.1007/978-3-030-38738-9_29-1

Received : 01 August 2023

Accepted : 04 August 2023

Published : 23 September 2023

Publisher Name : Palgrave Macmillan, Cham

Print ISBN : 978-3-030-38738-9

Online ISBN : 978-3-030-38738-9

eBook Packages : Springer Reference Economics and Finance Reference Module Humanities and Social Sciences Reference Module Business, Economics and Social Sciences

• Publish with us

Policies and ethics

• Find a journal
• Track your research