Corporate Venture Capital and the Boundaries of the Firm

Abstract

This study presents a novel measure of the overlap between a Corporate Venture Capital (CVC) investor and an entrepreneurial firm in the product, market, and technology spaces. Using this measure, we show that an incumbent’s decisions to invest into, versus acquire, a startup are parallel considerations, rather than options sequentially exploited at different stages of a startup's life-cycle. The CVC’s distinct features regarding property rights and information acquisition are preferred when the overlap is low. Also, CVC investments spur the greatest ex-post change in firm scope when the startup has moderate (vs. low or high) overlap with the corporate investor.

Keywords: corporate venture capital, entrepreneurial finance, boundaries of the firm, machine learning, strategic investments, acquisition

JEL Classification: G24, G34, L26