Advanced Search
MyIDEAS: Login

Corporate Venture Capital: The Upside of Failure and Competition for Talent

Contents:

Author Info

  • Chemla, Gilles
  • de Bettignies, Jean-Etienne

Abstract

We consider the motives for a firm to engage in corporate venturing. We argue that in case of failure of a new venture, corporate venture capitalists (CVC) have a strategic advantage relative to traditional venture capitalists (VC) in creating rents after rehiring or refinancing the entrepreneurs. Hence, corporate venturing induces the would-be entrepreneur to exert an effort that is higher than within the corporation, but lower than under traditional venture capital financing. Ceteris paribus, the entrepreneur ends up with fewer shares and less control under CVC financing than under traditional VC financing. Competition from venture capitalists increases corporate venturing activity, the salaries of potential entrepreneurs, and total economic output. Our results are consistent with the observed pro-cyclicality of corporate venture capital activity with venture capital activity.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cepr.org/pubs/dps/DP4139.asp
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4139.

as in new window
Length:
Date of creation: Dec 2003
Date of revision:
Handle: RePEc:cpr:ceprdp:4139

Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information:
Email:

Related research

Keywords: competition; corporate venture capitalist; entrepreneur; failure; manager; venture capitalist;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Klaus Schmidt, 1999. "Convertible Securities and Venture Capital Finance," CESifo Working Paper Series 217, CESifo Group Munich.
  2. Black, Bernard S. & Gilson, Ronald J., 1998. "Venture capital and the structure of capital markets: banks versus stock markets," Journal of Financial Economics, Elsevier, vol. 47(3), pages 243-277, March.
  3. Paul Gompers & Josh Lerner, 2000. "The Determinants of Corporate Venture Capital Success: Organizational Structure, Incentives, and Complementarities," NBER Chapters, in: Concentrated Corporate Ownership, pages 17-54 National Bureau of Economic Research, Inc.
  4. Gilles Chemla & Michel A. Habib & Alexander Ljungqvist, 2007. "An Analysis of Shareholder Agreements," Journal of the European Economic Association, MIT Press, vol. 5(1), pages 93-121, 03.
  5. Denis Gromb & David Scharfstein, 2002. "Entrepreneurship in Equilibrium," NBER Working Papers 9001, National Bureau of Economic Research, Inc.
  6. Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-18, March.
  7. Faure-Grimaud, Antoine & Gromb, Denis, 2000. "Public Trading and Private Incentives," CEPR Discussion Papers 2505, C.E.P.R. Discussion Papers.
  8. Lazear, Edward, 2003. "Entrepreneurship," IZA Discussion Papers 760, Institute for the Study of Labor (IZA).
  9. Berglof, Erik, 1994. "A Control Theory of Venture Capital Finance," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 247-67, October.
  10. Jean-Etienne de Bettignies, 2008. "Financing the Entrepreneurial Venture," Management Science, INFORMS, vol. 54(1), pages 151-166, January.
  11. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October.
  12. Schmidt, Klaus M., 2003. "Convertible Securities and Venture Capital Finance," Munich Reprints in Economics 19769, University of Munich, Department of Economics.
  13. Hellmann, Thomas, 2002. "A theory of strategic venture investing," Journal of Financial Economics, Elsevier, vol. 64(2), pages 285-314, May.
  14. Paul A. Gompers, 2002. "Corporations and the financing of innovation: The corporate venturing experience," Economic Review, Federal Reserve Bank of Atlanta, issue Q4, pages 1-17.
  15. Amit, Raphael & Brander, James & Zott, Christoph, 1998. "Why do venture capital firms exist? theory and canadian evidence," Journal of Business Venturing, Elsevier, vol. 13(6), pages 441-466, November.
  16. Hellmann, Thomas F., 2002. "When Do Employees Become Entrepreneurs?," Research Papers 1770, Stanford University, Graduate School of Business.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Pascal François & Georges Hübner, 2010. "A Portfolio Approach to Venture Capital Financing," Cahiers de recherche 1046, CIRPEE.
  2. Hirsch, Julia & Walz, Uwe, 2006. "Why do contracts differ between VC types? Market segmentation versus corporate governance varieties," CFS Working Paper Series 2006/12, Center for Financial Studies (CFS).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:4139. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.