Theme C CORPORATE VENTURE CAPITAL IN THE CONTEXT OF CORPORATE INNOVATION

Abstract. Corporate venture capital (CVC) programs have followed a strongly cyclical pattern in response to the ebbs and flows of the private and public equity markets. However, the role of these programs inside the firm has received far less study. What role do corporate venture programs play inside large corporations, beyond any financial returns they generate? Do these programs substitute for more traditional corporate investments, such as R&D spending, perhaps outsourcing some portion of a company’s innovation activities? Or do they complement internal R&D spending, and thereby stimulate additional corporate innovation activities? To examine these questions, we develop a novel dataset of US and selected foreign corporations that have initiated corporate venture capital investment programs since 1980. We then examine the R&D spending activities of these firms, prior to and immediately after the onset of CVC programs. We find that the existence of a CVC program is strongly and positively associated with the level of corporate R&D spending, and that this finding is robust to several alternate methods of estimation. We conclude that CVC investing should not be studied merely as an asset class within the public and private equity markets. The strategic dimensions of CVC deserve more attention within the larger context of corporate innovation activities. CVC investments can complement the actions of other corporate innovation initiatives, effects that are not measured in analyses of the financial returns of CVC portfolio investments.