Strategic Acquisitions by Corporate Venture Capital Investors

Abstract

Unlike traditional venture capitalists, corporate venture capital (CVC) investors are likely to eventually acquire portfolio ventures. I nd that the likelihood of such an acquisition decreases with the uncertainty associated with the venture’s innovation and increases with the number of CVCs co-invested. Moreover, CVCs with lower level of internal innovation are more likely to acquire portfolio ventures. However, the acquisition signals poor prospects for future innovation, which explains the negative market reaction to the announcements of such deals. I also show that CVCs appear to be learning through active management of their portfolios and acquire ventures backed by other CVCs when their own portfolio performs poorly.