The Liability of Foreignness in Early-Stage Corporate Venture Capital Investment

Cross-border corporate venture capital (CVC) investments are inevitable for firms outside the U.S. in order to access the emerging and disruptive technology of ventures in the U.S. In particular, investing in early-stage ventures has more strategic benefits than in later-stage ones. However, investing firms suffer from the liability of foreignness (LOF) to a greater extent in the case of CVC investments in early-stage ventures. Since establishing a local unit is a generally accepted approach to resolving the LOF, we examine whether non-U.S. firms establishing a local CVC unit in the U.S. helps to overcome the LOF. In addition, because CVC investments engender imitation risk for ventures, we also examine the moderating effect of the intellectual property protection (IPP) regime. The hypotheses are tested with 2,171 CVC investments in the U.S. between 2001 and 2010. We find that a local CVC unit is only effective in resolving LOF when the target venture is under a strong IPP regime.