The strategic management of a corporate venture capital program
Equity investments of less than fifty percent ownership by large firms in small companies are examined. Large firms may capitalize on the innovative ability of small companies to explore for future opportunities that have the potential to improve their competitive position. For the small company, “corporate” venture capital can be an alternative to traditional venture capital and large firms may provide benefits that venture capital firms cannot. However, little rigorous empirical research has been conducted on corporate venture capital.
Innovation that develops new technologies, products and markets is a driver of long-term growth. The small company can provide innovative technologies, products, markets, entrepreneurial talent, etc. that may otherwise be unavailable to the large firm and which can be a major source for additional competencies to more effectively compete.
Diversification strategy is the primary academic lens that this study views minority investments. The strategic fit among firms, in terms of their relatedness to one another has been applied to acquisition strategies and to the management of firms' various business units. Corporate venture capital may be considered to be part a firm's diversification strategy and the relatedness framework can be applied to minority investments. Small companies can be classified as related, vertically related or unrelated and each type may share common characteristics and provide common benefits.
Hypotheses have been developed around the three research questions of what small companies make the most appropriate partners, how much interaction between the large firm and small company is necessary and what conditions help the small company become an acquisition candidate. Investments in related small companies are anticipated to be made when they are in their earliest organizational life cycle stage, but operate in more evolved industries. Small companies that are vertically related to the large firm will tend to operate in all industry life cycle stages. Unrelated small companies may provide a low cost, low risk opportunity for large firms to explore new areas that they have no expertise in and to learn about those areas before committing more resources and are expected in small companies that operate in the earliest industry life cycle stage.