Transferability of the venture capital model to the corporate context: Implications for the performance of corporate venture units

Hill, Susan A.; Maula, Markku; Birkinshaw, Julian; Murray, Gordon

doi:10.1002/sej.54

Cited by 75 publications

(68 citation statements)

References 78 publications

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“…Commonly referred to as corporate venture capital (CVC), these sponsorships involve minority equity investment by the established fi rm in an entrepreneurial venture that seeks capital for growing its operations (Gompers and Lerner, 1998;Dushnitsky, 2006;Hill et al, 2009). In the year 2000 alone, nearly $16 billion was invested by more than 300 fi rms-representing 15 percent of the entire venture capital market.…”

Section: Introductionmentioning

confidence: 99%

“…Established fi rms often invest in external entrepreneurial ventures as a means of sourcing innovative ideas and sponsoring emerging technologies (Alvarez and Barney, 2001;Dushnitsky, 2006;Hill and Birkinshaw, 2008;Hill et al, 2009;Zahra, 1996). Commonly referred to as corporate venture capital (CVC), these sponsorships involve minority equity investment by the established fi rm in an entrepreneurial venture that seeks capital for growing its operations (Gompers and Lerner, 1998;Dushnitsky, 2006;Hill et al, 2009).…”

Section: Introductionmentioning

confidence: 99%

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How alliance formation shapes corporate venture capital investment in the software industry: a resource‐based perspective

Dushnitsky

Lavie

2010

Strategic Entrepreneurship

117

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Corporate venture capital (CVC) investments serve as interfi rm relationships that enable established fi rms to tap into emerging technology markets. Nevertheless, fi rms may also leverage their strategic alliances to this end. Does alliance formation reinforce or attenuate a fi rm's tendency to invest in entrepreneurial ventures? We introduce a resource-based perspective whereby resource complementarity and network resource visibility prompt a reinforcing association between CVC investment and alliance formation. In turn, external resource redundancy and internal resource allocation constraints yield an attenuating effect of alliance formation on CVC investment. Analyzing the alliances and CVC investments of 372 software fi rms during the 1990s, we reconcile these opposing arguments by revealing an inverted U-shaped association between CVC investment and alliance formation. Accordingly, the number of CVC investments fi rst increases, but then decreases, with the number of alliances formed. Moreover, the positive association between CVC investment and alliance formation diminishes as fi rms invest in their internal INTRODUCTIONEstablished fi rms often invest in external entrepreneurial ventures as a means of sourcing innovative ideas and sponsoring emerging technologies (Alvarez and Barney, 2001;Dushnitsky, 2006;Hill and Birkinshaw, 2008;Hill et al., 2009;Zahra, 1996). Commonly referred to as corporate venture capital (CVC), these sponsorships involve minority equity investment by the established fi rm in an entrepreneurial venture that seeks capital for growing its operations (Gompers and Lerner, 1998;Dushnitsky, 2006;Hill et al., 2009). In the year 2000 alone, nearly $16 billion was invested by more than 300 fi rms-representing 15 percent of the entire venture capital market. Despite the recent economic downturn and subsequent reduction in CVC investment, many fi rms have maintained a steady commitment to their venturing programs (Chesbrough, 2002;Ernst and Young, 2008).Extant research sheds light on the practice of CVC, which became pervasive during the 1990s (Dushnitsky, 2006). CVC activity facilitates in novation as well as access to new markets and complementary technologies Lenox, 2005a, 2005b;Hill et al., 2009;Siegel, Siegel, and MacMillan, 1988;Zahra, 1996;Zahra and Covin, 1995). Thus, CVC investing fi rms can enhance innovation (Dushnitsky and Lenox, 2005b;Wadhwa and Kotha, 2006) and fi nancial performance (Dushnitsky and Lenox, 2006;Gompers and Lerner, 1998). Nevertheless, little is known about fi rms' inclinations to engage in CVC activity and what drives a fi rm's tendency to invest in entrepreneurial ventures. In the current study, we focus on the role of strategic alliances in shaping a fi rm's CVC investment policy. Prior research has examined the merits of CVC activity relative to other types of interfi rm relationships, such as strategic alliances (Keil et al., 2008;Nicholls-Nixon and Woo, 2003;Powell, Koput, and Smith-Doerr, 1996). However, we know very little about the nature of interdepend...

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

How alliance formation shapes corporate venture capital investment in the software industry: a resource‐based perspective

Dushnitsky

Lavie

2010

Strategic Entrepreneurship

117

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“…von Hippel 1977, Burgelman 1983a, 1983b, Siegel, Siegel and MacMillan, 1988. This enables the ventures to make informed strategic and operating decisions (Fast 1979, Biggadike 1979, Zajac, Golden, Shortell, 1991 as they are faster and more flexible in their response to emerging radical investment opportunities (Hill et al 2009). At the same time, however, CVs can benefit from their parents' resources, which are an important requirement for enhancing the innovation process (Thompson 1965).…”

Section: Corporate Ventures As a Solution To A Lack Of Innovativenessmentioning

confidence: 99%

The Contribution of Corporate Ventures to Radical Innovation

2010

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp10060.pdf Non-Technical SummaryEstablished firms' difficulty to innovate has been discussed extensively among economists. In contrast to incumbent firms, industry entrants are often described to be more Our analysis is based on a sample of about 2,500 ventures in German manufacturing in the period 1993-2007. We find that CVs innovate more radically than a control group of independent ventures (IVs). The contribution of corporate ventures to radical innovations, however, significantly decreases with a more concentrated ownership structure. Ownership concentration increases the parents' incentive to monitor and control the ventures. The resulting lack of managerial discretion makes it difficult for the ventures to develop radical innovations. In conclusion, our findings signal the need to balance the control incentive, stemming from the incumbents' investment into corporate venturing, with the benefits from granting some independence to the ventures. We conclude with management advice on how a balance can be achieved. Das Wichtigste in Kürze August 2010 AbstractEstablished firms often face significant obstacles to innovation. As a solution, it has been suggested to form corporate ventures. Based on a sample of corporate and independent ventures in German manufacturing, we show that corporate ventures are more innovative than the control group, i.e. the independent ventures. In particular, corporate ventures are more successful at developing radical innovations. This effect, however, decreases with the ventures' degree of ownership concentration. We conclude that corporate ventures with a high ownership concentration are more likely to be controlled and monitored by their corporate sponsors, resulting in less favorable conditions for radical innovation.

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“…Performance (Brander et al 2002;Mason et al 2002;Fleming 2004;De Clercq & Dimov 2008;Hill et al 2009), Governance (Filatotchev et al 2005;Filatotchev et al 2006), Portfolio size (Cumming 2006b) Performance (Cumming et al 2004) Effects of syndicate composition Performance (Birmingham et al 2003;Dimov et al 2006;Giot et al 2007;Guler 2007) Performance (Du 2008;Hege et al 2008;Kotha 2008) Effect of networks Performance effect (Hochberg et al 2007;Abell et al 2007;Echols et al 2005), Information distribution (Walker 2008) Performance effect (Bothner et al 2008a;Bothner et al 2008b;Jääskeläinen et al 2008), Investment valuation …”

Section: Effects Of Syndicationmentioning

confidence: 99%

“…the ratio of syndicated ventures to all the investments of the fund, appears to have a positive effect on the profitability index but no effect on the IRR funds (Gerasymenko & Gottschalg 2008;Jääskeläinen et al 2008). The firm-level performance effects have been assessed through investment outcomes in terms of perceptions of performance (Hill et al 2009), the number and share of successful exits produced (Echols & Tsai 2005;Hochberg et al 2007), and the growth of the VC firms with respect to funds and investment targets (Bothner et al 2008a;Bothner et al 2008b). The studies on firm-level performance imply two concerns for drawing conclusions regarding the effects of syndication on performance.…”

Section: Vc Firm-level Effectsmentioning

confidence: 99%

Venture Capital Syndication: Synthesis and Future Directions

Jääskeläinen

2009

SSRN Journal

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Transferability of the venture capital model to the corporate context: Implications for the performance of corporate venture units

Cited by 75 publications

References 78 publications

How alliance formation shapes corporate venture capital investment in the software industry: a resource‐based perspective

How alliance formation shapes corporate venture capital investment in the software industry: a resource‐based perspective

The Contribution of Corporate Ventures to Radical Innovation

Venture Capital Syndication: Synthesis and Future Directions

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