Strategic Investment in Technology via Corporate Venture Capital

Abstract

We study corporate strategic investment in technology via corporate venture capital (CVC). An entrepreneurial venture is said CVC-superior if investing in it is better than investing in internal R&D to an investing company. We find that ventures with high expected technologies are CVC-superior; ventures with medium expected technologies are CVC-inferior; and ventures with low expected technologies are CVC-superior if the ventures have excellent financial profiles. CVC offers an option for the investing company to choose between an acquisition or a sale off of the venture. The option is said desirable if it improves efficiency. We find that this option is desirable for ventures with superior financial profiles, but undesirable for ventures with superior technological profiles.