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Two Faces of Early Corporate Venture Capital Funding: Promoting Innovation and Inhibiting IPOs

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  • Ji Youn (Rose) Kim

    (Department of Management, Gatton College of Business and Economics, University of Kentucky, Lexington, Kentucky 40506)

  • Haemin Dennis Park

    (Organization, Strategy, and International Management, Naveen Jindal School of Management, University of Texas at Dallas, Richardson, Texas 75080)

Abstract

We examine the dual effects of corporate venture capital (CVC) funding in a startup’s early stage on the startup’s long-term innovation rate and exit outcome. Based on a sample of 473 startups funded by independent venture capitalists and/or corporate venture capitalists, we find that startups that received CVC funding in their first three years of life tend to patent more but are less likely to go public, after accounting for their propensity to receive early CVC funding. Moreover, the detrimental effect of early CVC funding on the likelihood of an IPO is more pronounced when the startup’s founders are novice entrepreneurs. It appears that the incentives and capabilities of corporate investors leave a strong imprinting effect on a startup’s long-term innovation rate and exit outcomes. Our study has implications for CVC research, and more broadly, for the literature on the rate and direction of innovation by startups.

Suggested Citation

  • Ji Youn (Rose) Kim & Haemin Dennis Park, 2017. "Two Faces of Early Corporate Venture Capital Funding: Promoting Innovation and Inhibiting IPOs," Strategy Science, INFORMS, vol. 2(3), pages 161-175, September.
    • Handle: RePEc:inm:orstsc:v:2:y:2017:i:3:p:161-175
    DOI: 10.1287/stsc.2017.0032
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    3. Wang, Tao, 2023. "The ownership structure of corporate venture capital financing and innovation," Technovation, Elsevier, vol. 123(C).
    4. Diego Useche & Sophie Pommet, 0. "Where do we go? VC firm heterogeneity and the exit routes of newly listed high-tech firms," Small Business Economics, Springer, vol. 0, pages 1-21.

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