Corporate venture capital (CVC) activities--equity investments by large corporations in entrepreneurial ventures that originate outside the corporation--play an increasingly important role in innovation strategy for large corporations. Recent trends within the venture capital industry show that, after a period of decline at the end of the dotcom boom between 2000 and 2003, corporations are now responsible for a significant proportion of venture capital investments. According to PricewaterhouseCoopers and the National Venture Capital Association (2010), CVC units were involved in about 370 deals (13.3 percent of the total number of venture capital deals) in the United States in 2009, investing a total of $17.8 billion (7.4 percent of total U.S. venture capital investments). Perhaps as a result of the general trend toward a more open approach to innovation, large companies seem to see increasing value in external corporate venturing as a strategic tool for enhancing innovation processes (Birkinshaw and Hil12005; Dushnitsky and Lenox 2006; Gompers 2002; McGrath, Keil, and Tukiainen 2006).
Corporate venture capital programs can create value for both start-ups and the large companies that invest in them. Through corporate venture capital, companies can gain access to complementary technologies and a general window on technology developments (Fox 2003; Gompers 2002). Start-ups in receipt of investment from corporate venture activities benefit through, for instance, increased access to markets and customers as well as management advice (Maula 2001; McNally 1997). However, it remains unclear how both corporate venturers and start-up recipients capture and measure the strategic value of corporate venture capital investments (Allen and Hevert 2007; Rauser 2002).
In this context, we set out to investigate the strategic use and value of corporate venture capital by undertaking case studies of CVC activity at large, multinational companies. Our intent was to develop a conceptual, exploratory framework for corporate venture activities in order to understand how the strategic value of venture activities is captured and measured.
The findings presented here are based on nine in-depth case studies. (1) The studies were conducted in two stages. First, three development case studies were completed and a preliminary framework was derived from the data offered by this initial work. Subsequently, six in-depth case studies were conducted to refine and develop the framework.
The case-study participants all had stand-alone corporate venturing teams with strategic goals explicitly focused on value creation, long track records, and established processes for identifying and pursuing venture investments (Table 1). More than 30 managers of the selected corporate venturing units, their portfolio start-ups, and their parent firm's business units were interviewed in 2008 and 2009. Further interviews were conducted with industry experts, other investors, and consultants to provide context and additional information.
Interview data was enriched by analysis of secondary data, including documentation of the due-diligence activities of the corporate venture units, post-project evaluation of venturing activities, and published data of participant companies, such as press releases and annual reports.
The Concept of Corporate Venture Capital
Corporate venture capital (CVC) investments are a specific form of direct, external corporate venturing. CVC is commonly understood to be equity investments by established corporations in innovative, entrepreneurial ventures (Dushnitsky and Lenox 2006, 754). Some of the key characteristics of CVC are similar to those of non-corporate, institutional venture capital investments (Chesbrough and Tucci 2004):
* The start-ups receiving the investments are legally independent of the (corporate) investor and originate externally. This separates CVC from other forms of corporate venturing, such as incubation or spin-outs, in which the venture originates within the parent firm. …