Corporate Venture Capital and the Returns to Acquiring Portfolio Companies

Abstract:     
A prominent motive for corporate venture capital (CVC) is the identification of entrepreneurial-firm acquisition opportunities. Consistent with this view, we find that one of every five startups purchased by 61 top corporate investors from 1987 through 2003 is a venture portfolio company of its acquirer. Surprisingly, our analysis reveals that takeovers of portfolio companies destroy significant value for shareholders of acquisitive CVC investors, even though these same investors are “good acquirers” of other entrepreneurial firms. We explore numerous explanations for these puzzling findings, which seem rooted in managerial overconfidence or agency problems at the program level.

Number of Pages in PDF File: 47

Keywords: corporate venture capital, acquisitions, entrepreneurial finance, owner’s curse, governance, overconfidence

JEL Classification: G34, D82

working papers series