The formation and outcome of corporate venture capital investments between incumbents and new ventures

Abstract

This dissertation examines the formation and outcomes of interorganizational partnerships between industry incumbents and new ventures. New ventures are often a powerful competitive force threatening established firms, but incumbent firms can also benefit from collaborating with them and acquiring external knowledge. Although there has been significant research on the topic, relatively little is known about relational factors that influence who partners with whom and how. Also, strategic benefits of partnering with new ventures for incumbent firm's learning have not been scrutinized; in particular, whether making such formal arrangements is the best way for incumbents to attain knowledge from new ventures, and whether there are any alternative learning mechanisms available have not been examined. I address these issues in the context of corporate venture capital (CVC) investments, typically the first relationships formed between new ventures and incumbent firms. First, I examined how new ventures' social ties with potential corporate investors based on founders' employment or prior co-investments of the lead venture capital firm influence the formation of CVC investment deals. Second, I examined the relative effects of multiple mechanisms including CVC investments on incumbent firm learning from new ventures. I find that 1) the formation of investment relationships between new ventures and incumbents is a joint function of social ties between them, an incumbent firm's integrity regarding the intellectual property of others, and technological links between them; 2) CVC investments have little independent effect on incumbent firm learning from new ventures when alternative knowledge transfer mechanisms such as hiring inventors from new ventures, prior knowledge spillover links and outbound inventor mobility are simultaneously accounted for.