Research Summary: We apply real options (RO) theory to understand the role of corporate venture capital (CVC) investments and its relationship with internal R&D capabilities in supporting the acquisition of external technologies. We formulate hypotheses about key drivers of the option value of CVC and the decision to exercise the RO using a dyadic dataset of global pharmaceutical firms and their biotech partners. Our findings suggest that the option value of CVC is higher for investors with weaker scientific capabilities; engaging the markets for technology in distant technological fields; and, when their innovation pipeline is tilted toward the late‐stage development process. Finally, the licensing of high‐value technologies is the most likely form of option exercise when technological uncertainty is reduced post‐CVC. Managerial Summary: Despite the fact that one of the main goals of corporate venture capital (CVC) investments in high‐tech industries is to gain a window on future technologies, the relationship between CVC and other strategies used to acquire external technologies, such as licensing, has not been adequately explored. To address this gap, we formulate hypotheses about key drivers of the decision to make CVC investments as a wait‐and‐see strategy in the markets for technology (MFT) using a longitudinal dataset of global pharmaceutical firms and their biotech partners. We find that investors' scientific capabilities, technological domains, and research pipelines impact investors' decisions to make CVC investments prior to other MFT transactions. In our research setting, investors typically acquire high‐value technologies via licensing when technological uncertainty is reduced post‐CVC.

and conference participants at the Academy of Management for helpful comments and suggestions. Higgins gratefully acknowledges funding from the Imlay Professorship. The authors are listed alphabetically and the usual disclaimer applies. Any remaining errors are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

We build on the exploratory and exploitative learning literature that suggests that venture capital and governmental research grants may impact regional employment in a different manner. Using a regional employment dataset in the U.S. medical device sector, our analysis reveals that research grants contribute to create a greater level of regional employment compared with venture capital funding. Furthermore, the positive effects of both funding sources are more salient when intellectual capital is abundant in the region. More specifically, the interaction effect of research grants and intellectual capital is gradually increased in the long term and eventually becomes greater than that of venture capital and intellectual capital, which is relatively constant. These findings highlight the heterogeneous motivations and consequences of two funding sources that should be considered in the future resource allocation policy accordingly.

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