Corporate Venture Capital as a Window on New Technologies: Implications for the Performance of Corporate Investors When Acquiring Startups

Benson DF, Ziedonis RH. 2009. Corporate venture capital as a window on new technologies: implications for the performance of corporate investors when acquiring startups. Organization Science 20 (2): 329-351

23 Pages Posted: 27 Jan 2016

See all articles by David F. Benson

David F. Benson

Brigham Young University

Rosemarie Ham Ziedonis

Boston University - Questrom School of Business

Date Written: March 30, 2009

Abstract

Gaining a “window” on new technologies is a prominent motive for corporate venture capital (CVC) investing. Recent studies suggest that information gained through CVC-related activities can improve the internal R&D productivity of established firms. This study investigates an alternative means by which information gained through CVC investing could improve firm performance — by increasing the returns to corporate investors when acquiring startups. We provide new insights based on an event study of the returns to 34 corporate investors from acquiring 242 technology startups. Consistent with predictions drawn from the absorptive capacity literature, we find that the effect of CVC investing on acquisition performance hinges critically on the strength of the acquirer’s internal knowledge base: as CVC investments increase relative to an acquirer’s total R&D expenditures, acquisition performance improves at a diminishing rate. We also find that firms consistently engaged in venture financing earn greater returns when acquiring startups than do firms with more sporadic patterns of investing, even controlling for firm profitability, size, and acquisition experience. These findings suggest that corporate investors systematically differ in their abilities to derive added benefits from external venturing as acquirers of entrepreneurial firms.

Keywords: acquisitions; startups; innovation strategy; absorptive capacity

JEL Classification: G34, D82

Suggested Citation

Benson, David F. and Ziedonis, Rosemarie Ham, Corporate Venture Capital as a Window on New Technologies: Implications for the Performance of Corporate Investors When Acquiring Startups (March 30, 2009). Benson DF, Ziedonis RH. 2009. Corporate venture capital as a window on new technologies: implications for the performance of corporate investors when acquiring startups. Organization Science 20 (2): 329-351. Available at SSRN: https://ssrn.com/abstract=2722896

David F. Benson (Contact Author)

Brigham Young University ( email )

Provo, UT 84602
United States
801-422-8383 (Phone)

HOME PAGE: http://marriottschool.byu.edu/employee/employee.cfm?emp=dfb6

Rosemarie Ham Ziedonis

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

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