Why Do Incumbents Fund Startups? A Study of the Antecedents of Corporate Venture Capital in China

Abstract

Established firms are instrumental in funding entrepreneurial ventures, a practice known as corporate venture capital (CVC). Yet, our knowledge of the reasons firms engage in CVC is calibrated mainly on data from the United States and Europe. Such a restricted focus limits our understanding of CVC practices and objectives. Accordingly, we adopt an abductive approach to study the antecedents of CVC in China. The country is a vibrant entrepreneurial setting, second only to the USA in total startup numbers and funding amounts. We construct a comprehensive data of Chinese CVCs during the late 2010s by integrate Chinese and international databases. Cross-industry analyses of CVC patterns underscore a novel objective; one that is predominantly associated with harnessing growth through market expansion rather than the prevailing view of CVC as a window on technology. The findings mirror the features of the Chinese setting, where entrepreneurs profit from the dramatic expansion in economic activity and serve as a vehicle to leverage the global innovation frontier.

Keywords: Corporate venture capital, China, entrepreneurship, growth, innovation, abductive approach