Corporate Venture Capital: The Upside of Failure and Competition for Talent

30 Pages Posted: 3 Jan 2004

See all articles by Jean-Etienne de Bettignies

Jean-Etienne de Bettignies

Queen's University - Smith School of Business

Gilles Chemla

Imperial College Business School; CNRS ; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2003

Abstract

We consider the motives for a firm to engage in corporate venturing. We argue that, in case of failure of a new venture, corporate venture capitalists (CVC) have a strategic advantage relative to traditional venture capitalists (VC) in creating rents after rehiring or refinancing the entrepreneurs. Hence, corporate venturing induces the would-be entrepreneur to exert an effort that is higher than within the corporation, but lower than under traditional venture capital financing. Ceteris paribus, the entrepreneur, ends up with fewer shares and less control under CVC financing than under traditional VC financing. Competition from venture capitalists increases corporate venturing activity, the salaries of potential entrepreneurs, and total economic output. Our results are consistent with the observed pro-cyclicality of corporate venture capital activity with venture capital activity.

JEL Classification: G24, G32, M12, M13

Suggested Citation

de Bettignies, Jean-Etienne and Chemla, Gilles, Corporate Venture Capital: The Upside of Failure and Competition for Talent (December 2003). Available at SSRN: https://ssrn.com/abstract=482824

Jean-Etienne De Bettignies

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Gilles Chemla (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
London SW7 2AZ, SW7 2AZ
United Kingdom
+44 207 594 9161 (Phone)
+44 207 594 9210 (Fax)

CNRS ( email )

Dauphine Recherches en Management
Place du Marechal de Lattre de Tassigny
Paris, 75016
France
331 44054970 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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