Corporate Venture Capital, Value Creation, and Innovation

Abstract

We analyze how corporate venture capital (CVC) differs from independent venture capital (IVC) in nurturing innovation in entrepreneurial firms. We find that CVC-backed firms are more innovative, as measured by their patenting outcome, although they are younger, riskier, and less profitable than IVC-backed firms. Our baseline results continue to hold in a propensity-score-matching analysis of IPO firms and a difference-in-differences analysis of the universe of VC-backed entrepreneurial firms. We present evidence consistent with two possible underlying mechanisms: CVCs’ greater industry knowledge due to the technological fit between their parent firms and entrepreneurial firms and CVCs’ greater tolerance for failure.

Keywords: Innovation, Corporate Venture Capital, Value Creation, Patents, Citations

JEL Classification: G24, G23, O31