Performance implications of corporate venture capital investments for entrepreneurial ventures: the differing moderating effects of R&D intensity before and after IPO

Abstract

Purpose One increasingly popular financing option for entrepreneurial ventures is to attract corporate venture capital (CVC) investments. Prior research tends to take a CVC-centric perspective assessing the benefits and contingencies for incumbent firms or corporate investors to engage with entrepreneurial ventures. Few studies have taken the opposite perspective of investigating factors that entrepreneurial ventures need to take into account when engaging with CVC investments. As such, this study aims to investigate pre- and post-IPO entrepreneurial venture performance that partners with CVC providers or corporate investors, as well as to assess organizational and environmental contingencies. Design/methodology/approach This study draws on a sample of 631 entrepreneurial ventures from the CSMAR database ranging from 2009 to 2019, along with CVC financing data from the CVSource database and financial data in entrepreneurial ventures’ annual reports from the Juchao Network. This study applies multiple linear regression modelling and fixed effect panel data analyses to test the proposed hypotheses. Findings The results show that CVC investment contributes to entrepreneurial ventures’ financial performance, both pre- and post-IPO. However, while research and development (R&D) intensity and geographic proximity strengthen the positive relationship between CVC investment and entrepreneurial ventures’ performance pre-IPO, R&D intensity has a negative moderating effect on the relationship between CVC investment and entrepreneurial ventures’ performance post-IPO. Practical implications First, in emerging economies, adopting a CVC financing strategy is an important strategic choice for entrepreneurial ventures that have a great demand for external capital, resources and technology support. Second, leveraging the relationship between external financing and internal R&D investment is essential for them to maintain their core competitiveness and sustainable growth. Moreover, entrepreneurial ventures should deal with the coopetitive relationship with incumbent companies and manage their dependency on other market participants in the external environment. Originality/value This study focuses on the performance implications for entrepreneurial ventures engaging with CVC investments pre- and post-IPO. First, this study broadens and expands prior research on the mechanism of the relationship between CVC and entrepreneurial ventures’ financial performance. Second, the research conducts a comparative study of the moderating effects of different timings. Third, this study applies learning theory to the field of CVC in emerging economies.

Guest editorial: Sustainable entrepreneurship: a new approach in Latin America and the Caribbean

“…Investigating knowledge management processes in diverse settings can expand the scope of the current research (Urbaniec et al , 2021). Combining various theoretical perspectives, including economics, strategic management and innovation, can enrich the literature on sustainable entrepreneurship (Reihlen et al , 2021; Dai et al , 2022) suggest exploring the strategic venturing-legitimacy nexus to deepen understanding of how internal strategic initiatives gain legitimacy.…”

Venture Capital Financing as A Driver for Entrepreneurship Development in Africa. A Literature Review and Future Research Agenda

“…After disentangling a spectrum of extant literature regarding entrepreneurship growth through a VC funding model, we discover that a growing body of evidence offers mixed conclusions (Figure 3). As seen in Figure 3, 44% of the reviewed articles largely focused exclusively on entrepreneurship and SME development (e.g., Abubaker, 2015; Kloepfer & Castrogiovanni, 2018;Möller & McCaffrey, 2021;Cruz Rincon et al, 2022;Endris & Kassegn, 2022) , this was followed by 21% of articles published exclusively about venture capital (e.g., Keuschnigg and Soren, 2004;Messica & Agmon, 2008;Iriyama et al, 2010;Groh & Liechtenstein, 2011;Portmann & Mlambo, 2013) while 18% studied VC and firm-level performance (Ajagbe & Ismail, 2014;Lechner et al, 2016;Kato & Germinah, 2022;Sriyono et al, 2021;Dai et al, 2022;(Kato & Germinah, 2022). Many of these studies are often narrowed to firm-level performance of entrepreneurship efforts, declining to describe the interaction between entrepreneurship and VC investment efforts Bruton et al, (2008).…”

“…Previous studies document that to sustain entrepreneurship development, Africa demands a broad spectrum of sustainable funding models and state effective involvement that can inspire foreign investors. In the context of feasible equity financing sources, many scholarly articles support VC investment for the continued contribution to the emergence of global famous entrepreneurship model centres, for instance, the United States (US) model of Small Business Page │1178 Investment Companies (SBIC) and Yozma fund in Israel (Virtanen, 2001;Gaspar, 2009;Lerner, 2010;Gu et al, 2018;Iriyama et al, 2010;Dai et al, 2022). Albeit, the abundant empirical data presented on the VC's role is largely from US and European countries, as this is where utmost consistent data is available (Tykvova, 2018;Gompers et al, 2020).…”