Venture Capital and Innovation Strategies
Forthcoming, Industrial and Corporate Change
44 Pages Posted: 17 Apr 2015 Last revised: 27 Sep 2016
Date Written: July 17, 2016
Venture capital investors are specialized financial intermediaries that provides funding for technological innovation with the goal of realizing a capital gain within a few years. We are the first to examine the association of venture capital funding with a company’s choice of innovation strategies. We employ a unique dataset of over 10,000 innovative Dutch companies, some of which received venture financing. The data include detailed information on patent applications, innovation activities, and other company characteristics. We find that companies backed by venture capital focus on the build-up of absorptive capacity by engaging in both in-house R&D and in the acquisition of external knowledge. Companies that receive public funding, instead, are able to relax their financing constraints and perform more innovation activities without focusing solely on absorptive capacity. Our results also suggest that the correlation between venture capital funding and the build-up of absorptive capacity is not only due to a selection effect. We derive implications of these findings for corporate strategy and public policy.
Keywords: Venture Capital; Entrepreneurship; Innovation Strategy; Research & Development; Public Policy
JEL Classification: G24, O32, O38
Suggested Citation: Suggested Citation