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Developing the selection and valuation capabilities through learning: The case of corporate venture capital

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  • Yang, Yi
  • Narayanan, V.K.
  • Zahra, Shaker
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    Abstract

    The objective of this paper is to examine the impacts of experience intensity, experience diversity and acquisitive experience on the development of selection and valuation capabilities that help the parent (investor) company generate higher short-term financial returns and improve long-term strategic performance. Based on our analysis of 2110 cases of CVC investments in the VenureXpert data base, we find that industry diversity of a CVC program's experience is positively related to its selection of portfolio companies with relatively high financial potential. The CVC program's experience intensity, stage diversity of its experience, and syndication improve its selection of portfolio companies with greater strategic potential. In addition, stage diversity may enhance valuation capability. We also find that experience accumulation is more effective when a CVC program invests in a portfolio company in the later stage rather than in the early stage.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Business Venturing.

    Volume (Year): 24 (2009)
    Issue (Month): 3 (May)
    Pages: 261-273

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    Handle: RePEc:eee:jbvent:v:24:y:2009:i:3:p:261-273

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    Web page: http://www.elsevier.com/locate/jbusvent

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    Keywords: Corporate venture capital Organizational learning Capability development;

    References

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    1. Shepherd, Dean A. & Zacharakis, Andrew, 2002. "Venture capitalists' expertise: A call for research into decision aids and cognitive feedback," Journal of Business Venturing, Elsevier, Elsevier, vol. 17(1), pages 1-20, January.
    2. Paul Gompers & Anna Kovner & Josh Lerner, 2009. "Specialization and Success: Evidence from Venture Capital," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 18(3), pages 817-844, 09.
    3. Yoshikawa, Toru & Phan, Phillip H. & Linton, Jonathan, 2004. "The relationship between governance structure and risk management approaches in Japanese venture capital firms," Journal of Business Venturing, Elsevier, Elsevier, vol. 19(6), pages 831-849, November.
    4. Dean A. Shepherd, 1999. "Venture Capitalists' Assessment of New Venture Survival," Management Science, INFORMS, INFORMS, vol. 45(5), pages 621-632, May.
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    15. Mike Wright & Andy Lockett, 2003. "The Structure and Management of Alliances: Syndication in the Venture Capital Industry," Journal of Management Studies, Wiley Blackwell, Wiley Blackwell, vol. 40(8), pages 2073-2102, December.
    16. Rosenberg, Nathan & Steinmueller, W Edward, 1988. "Why Are Americans Such Poor Imitators?," American Economic Review, American Economic Association, American Economic Association, vol. 78(2), pages 229-34, May.
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    Cited by:
    1. Basu, Sandip & Phelps, Corey & Kotha, Suresh, 2011. "Towards understanding who makes corporate venture capital investments and why," Journal of Business Venturing, Elsevier, Elsevier, vol. 26(2), pages 153-171, March.
    2. Bart Clarysse & Annelies Bobelyn & Itxaso Palacio Aguirre, 2013. "Learning from own and others’ previous experience: the contribution of the venture capital firm to the likelihood of a portfolio company’s trade sale," Small Business Economics, Springer, Springer, vol. 40(3), pages 575-590, April.
    3. Schwienbacher, Armin, 2013. "The entrepreneur's investor choice: The impact on later-stage firm development," Journal of Business Venturing, Elsevier, Elsevier, vol. 28(4), pages 528-545.
    4. Lin, Shu-Jou & Lee, Ji-Ren, 2011. "Configuring a corporate venturing portfolio to create growth value: Within-portfolio diversity and strategic linkage," Journal of Business Venturing, Elsevier, Elsevier, vol. 26(4), pages 489-503, July.
    5. Ughetto, Elisa, 2010. "Assessing the contribution to innovation of private equity investors: A study on European buyouts," Research Policy, Elsevier, Elsevier, vol. 39(1), pages 126-140, February.

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