A Theory of Corporate Venture Investing

Stanford University GSB Working Paper 1452

Sauder School of Business Working Paper

Posted: 4 Feb 1998

See all articles by Thomas F. Hellmann

Thomas F. Hellmann

University of Oxford - Said Business School; University of Oxford - Said Business School

Date Written: September 17, 1997

Abstract

Empirically it appears that while investing heavily in internal R&D, established corporations are playing only a relatively minor role in the financing of entrepreneurial companies, even if there seem to be "strategic" reasons that would justify such investments. I examine theoretically how strategic objectives affect an established corporation's ability to invest in entrepreneurial companies. With perfect contracting, an entrepreneur would always accept funding from a corporate investor. If investors can take non-contractible actions, however, the entrepreneur may prefer to be funded by an independent venture capitalist. This is because the corporate investor may provide too little support or exercise too much self-interested control. Outcomes depend critically on the extent to which the entrepreneurial company complements or cannibalizes the profits of the established company.

JEL Classification: L10, G24, M13, O31

Suggested Citation

Hellmann, Thomas F., A Theory of Corporate Venture Investing (September 17, 1997). Stanford University GSB Working Paper 1452; Sauder School of Business Working Paper. Available at SSRN: https://ssrn.com/abstract=54923

Thomas F. Hellmann (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

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