Interorganizational knowledge transfer through corporate venture investment

Today established corporations seeking growth face an increasing need to pursue innovation. Historically, the innovation literature has focused on the role of internal R&D and related diversification for firm innovation. However, internal R&D plays only a partial role in firm innovation when the firm attempts to create an entirely new market. In order to acquire the knowledge necessary to generate innovation, firms have increasingly chosen more radical transformation paths recently. Particularly in the information and communication technology sector, large firms have set up Corporate Venture Capital (CVC) to bring external ideas and technologies outside their existing business areas into their innovation arena. A single research question motivated this dissertation: How does corporate venture capital investment by a parent firm affect knowledge transfer from the start-up? In answering this question I employed two theoretical foundations. First, drawing on the concept of distant search, I argue that search for external knowledge through CVC investment provides a parent firm with an opportunity to source external knowledge from the start-up. Second, building upon literature on knowledge transfer, I suggest that types of CVC structure facilitate external knowledge transferred from the start-up to a parent firm. Finally, I posit that knowledge attribute of the parent firm improves the parent firm\u27s ability to source external knowledge from the start-up. Three hypotheses are developed to test these relationships. Longitudinal data on a panel of 29 large firms in the information communication technology industry covering the period from 1995 to 2005 are used to test these hypotheses. Patent citation is used to measure the level of knowledge transferred from an entrepreneurial firm to a parent firm. Taken together, statistical results of this research provide evidence that the number of CVC investments has an inverted U-shaped relationship with the level of knowledge transferred from the start-up. Both the CVC structure and technological diversity of the parent firm have moderating effects on the relationship between the number of CVC investments and the level of knowledge transferred from the start-up