The Life Cycle of Corporate Venture Capital

Abstract

This paper investigates why industrial firms conduct Corporate Venture Capital (CVC) investment in entrepreneurial companies. I test alternative views on CVC by exploiting the entry, investment, and termination decisions of CVC divisions. CVC entry concentrates in firms that experience deteriorations of internal innovation. At the investment stage, CVCs select startups with a similar technological focus but that have a non-overlapping knowledge base, and they integrate technologies generated from these ventures that create strategic value. CVCs are terminated when parent firms’ innovation recovers. Overall, the strategic desire to fix innovation weaknesses after adverse shocks motivates firms to adopt CVCs. Received November 15, 2017; editorial decision March 2, 2019 by Editor Francesca Cornelli. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Entrepreneurial Spillovers from Corporate R&D

“…These results are consistent with Ma (2016), who finds that public firms launch corporate venture capital programs when internal innovation is poor, invest in startups in their own industries, and invest in geographically distant startups. That is, corporate venture capital is a way to outsource innovation.…”

“…Consistent with the out-of-sample test, there is no effect of an interaction between R&D and the parent having a corporate VC program (see Gompers, Gornall, Kaplan & Strebulaev 2018). This is related to the Ma (2016) finding that public firms tend to launch corporate VC programs when internal innovation is poor and tend to invest in startups in their own industries. That is, corporate VC is a way to outsource innovation.…”

Selling Innovation in Bankruptcy

“…We then follow a procedure, similar to that of Ma (2016) and Brav et al (2017), in which we identify patent transactions from all patent reassignment records from 1976 to 2015. Importantly, the identified patent transactions do not include cases involving an internal patent transfer, either from an inventor to his/her employer or between two firm subsidiaries.…”

The Role of Open Innovation in the Energy Transition

“…Notably, outside the IT segment, pharmaceutical companies such as Takeda, Sanofi, Lilly, Novartis etc. have begun to stand out and make significant investments using CVC units (DUSHNITSKY, 2011;MA, 2016). This change in the direction of CVC use represented the beginning of the next wave almost immediately, and conceptually can be seen in Figure 14.…”

“…Several authors investigating the characteristics and evolution of CVC around the world divide this story into cycles or "waves" (BARRETTO-KO, 2011;BENSON;ZIEDONIS, 2010;BIELESCH et al, 2012;CB INSIGHTS, 2017;DUSHNITSKY, 2011;FAN, 2018;GOMPERS, 2002;MA, 2016). Although there are disagreements about the exact periods of each wave, there was some consensus on the existence of four of them.…”