Corporate venture capital and the value-added for technology-based new firms

Abstract

This dissertation seeks to contribute to the body of literature covering the field of interorganizational relationships of entrepreneurial firms. More specifically, this study attempts to fill a significant gap in the research into relationships between entrepreneurial firms and their corporate venture capital investors. Even though it has been recognized that relationships with large corporations can have significant implications for the performance of technology-based new firms through corporate venture capital investments, there is little rigorous, theory-based, empirical research that focuses on the factors influencing the value-added that start-up companies receive from their corporate investors. This dissertation contributes to the literature by developing and empirically testing a model of the value-added mechanisms and of the factors influencing those mechanisms.

Based on a review of the literature covering corporate venture capital and related domains of research into interorganizational relationships, this dissertation identifies resource acquisition, knowledge acquisition, and endorsement benefits as the primary mechanisms through which corporate venture capital investments add value to technology-based new firms beyond financing.

Building on received theories, an integrated model of the value-added mechanisms, and the factors influencing those mechanisms is developed. The model draws on the resource-based view and the knowledge-based view of the firm in order to understand the factors influencing resource and knowledge acquisition by portfolio companies. These theories are complemented by social capital theory in providing predictions as to the factors facilitating the sharing of knowledge and opportunities for resource sharing across organizational boundaries. Organizational economics complement the other theories in helping to understand corporate investment in relationships with, and in support for, the entrepreneurial firm. The hypotheses concerning the endorsement benefits for entrepreneurial firms stemming from the relationships with corporate investors draw mainly on the sociological research examining interorganizational endorsement. To extend the literature on the factors influencing endorsements, the model draws on the asymmetric information and signaling theories to identify factors influencing the strength of the signals from the endorsements. Transaction cost theory provides further predictions as to the value of external endorsement for the portfolio company, depending on the switching costs for potential customers and partners.

In order to test the model empirically, primary data were collected from CEOs of U.S. corporate venture capital financed technology-based new firms using two sequential mail surveys. The primary data were complemented by archival data. The hypotheses were tested using multivariate statistical techniques, including multiple regression analysis and structural equation modeling. The model and the hypotheses received support from the empirical data.

This dissertation makes important contributions to the literature in the area of corporate venture capital and interorganizational relationships of technology-based new firms on a more general level. The findings have important practical implications for entrepreneurs either seeking corporate venture capital or already managing an existing investor relationship with a corporate venture capital investor. In addition to entrepreneurs, the findings have important implications for corporate venture capitalists and venture capitalists.