Inter-firm collaboration : a study of corporate venture capital in the United Kingdom

Since the beginning of the 1980s there has been a significant increase in the number and forms of collaborative inter-firm relationships. Various theories have attempted to account for both the formation and the spatial organisation of these alliances. However, the majority of academic studies have taken a generalist stance, considering collaboration per se. It is argued that in the light of the complexity surrounding inter-firm relationships, there is a need for the research emphasis to become more focused on individual alliance forms, and specifically large firm-small firm linkages which have tended to be ignored in previous research. This thesis therefore considers one form of inter-firm collaboration between large and small companies that has been particularly neglected in the literature, namely corporate venture capital (CVC) investment. CVC investrnents involve large non-financial companies taking minority equity stakes in small unquoted firms. They can take two main forms: indirect investments made via externally-managed funds, and direct investments managed by the investing company itself. The potential benefits of CVC for investing companies, investee firms (particularly those in technology sectors) and independent fund managers are identified through a comprehensive literature review. However, despite these benefits, the levels of CVC are reportedly very low in the U. K., particularly in comparison with the U. S. A.. This thesis addresses the lack of academic and practical research into CVC by examining the role of this activity as both a form of large firm-small firm collaboration and an alternative source of equity finance for small firms and the venture capital funds which invest in them. These issues are explored through surveys of 39 independent fund managers, 73 corporate executives and 48 technology-based firm directors. The research involves semi-structured questionnaires administered via face-to-face and telephone interviews. The research finds the levels of CVC in the U. K. to be modest but far from non- existent. Investments as a whole tend to be made for strategic purposes, although financial gain, social responsibility and learning about the venture capital process are also important motivations. Investee firms are typically seeking financial and non-financial resources. However, the findings identify important distinctions between indirect and direct investment forms in terms of the objectives of participating companies. These differences have, in turn, affected the nature of investments and post-investment experiences. Overall, the thesis identifies the role of CVC in helping large and small companies to capitalise upon their complementary assets via collaboration. It recognises CVC as a valuable source of equity finance for small, and particularly early stage technology-based, firms as well as the funds which specialise in investing in such ventures. The thesis concludes by considering both the broader implications of the findings and avenues for further research.