World Scientific
  • Search
  •   
Skip main navigation

Cookies Notification

We use cookies on this site to enhance your user experience. By continuing to browse the site, you consent to the use of our cookies. Learn More
×

New Venture Value Creation in Syndicates Between Independent and Corporate Investors

    https://doi.org/10.1142/S0219877022500146Cited by:2 (Source: Crossref)

    Consistent with the resource-based view research on investment syndicates indicates relative performance advantages of syndicate-backed ventures. However, in line with agency theory, the literature shows that heterogeneous syndicates between independent venture capital (IVC) and corporate venture capital (CVC) produce portfolio firms that exert only marginal growth and are less likely to exit successfully. These contrasting views motivate this study, which aims to shed light on the determinants of value creation for new venture firms in IVC–CVC co-investing. Our qualitative research builds on a cross-industry sample of 35 interviewees identifying a distinctive set of value drivers comprising shareholder relationships, corporate setup, venture life cycle, and deal terms.

    References

    • Abrardi, L., Croce, A. and Ughetto, E. (2019) The dynamics of switching between governmental and independent venture capitalists: Theory and evidence. Small Business Economics, 53: 165–188. CrossrefGoogle Scholar
    • Alvarez-Garrido, E. and Dushnitsky, G. (2016) Are entrepreneurial venture’s innovation rates sensitive to investor complementary assets? Comparing biotech ventures backed by corporate and independent VCs. Strategic Management Journal, 37: 819–834. CrossrefGoogle Scholar
    • Arthurs, J., Hoskisson, R., Bursenitz, L. and Johnson, R. (2008) Managerial agents watching other agents: Multiple agency conflicts regarding underpricing in IPO firms. Academy of Management Journal, 51: 277–294. CrossrefGoogle Scholar
    • Barney, J. (1991) Firm resources and sustained competitive advantage. Journal of Management, 17: 99–120. CrossrefGoogle Scholar
    • Basu, S., Phelps, C. and Kotha, S. (2011) Towards an understanding who makes corporate venture capital investments and why. Journal of Business Venturing, 26: 153–171. CrossrefGoogle Scholar
    • Basu, S., Phelps, C. and Kotha, S. (2016) Search and integration in external venturing: An inductive examination of corporate venture capital units. Strategic Entrepreneurship Journal, 10: 129–152. CrossrefGoogle Scholar
    • Baum, J. A. C. and Silverman, B. S. (2004) Picking winners or building them? Alliance, intellectual, and human capital as selection criteria in venture financing and performance of biotechnology startups. Journal of Business Venturing, 19: 411–436. CrossrefGoogle Scholar
    • Benzouai, M. C. and Djeffal, K. (2021) A bibliometric review of research on venture capital. Asian Academy of Management Journal, 26: 47–88. CrossrefGoogle Scholar
    • Bertoni, F., Colombo, M. G. and Grilli, L. (2013) Venture capital investor type and the growth mode of new technology-based firms. Small Business Economics, 40: 527–552. CrossrefGoogle Scholar
    • Bertoni, F., Colombo, M. G. and Quas, A. (2019) The role of governmental venture capital in the venture capital ecosystem: An organizational ecology perspective. Entrepreneurship Theory and Practice, 43: 611–628. CrossrefGoogle Scholar
    • Bertoni, F. and Tykvová, T. (2015) Does governmental venture capital spur invention and innovation? Evidence from young European biotech companies. Research Policy, 44: 925–935. CrossrefGoogle Scholar
    • Bjørgum, Ø. and Sørheim, R. (2015) The funding of new technology firms in a pre-commercial industry — The role of smart capital. Technology Analysis and Strategic Management, 27: 249–266. CrossrefGoogle Scholar
    • Brander, J. A., Du, Q. and Hellmann, T. (2015) The effects of government-sponsored venture capital: International evidence. Review of Finance, 19: 571–618. CrossrefGoogle Scholar
    • Bruton, G., Filatotchev, I., Chahine, S. and Wright, M. (2010) Governance, ownership structure and performance of IPO firms: The impact of different types of private equity investors and institutional environments. Strategic Management Journal, 31: 491–509. CrossrefGoogle Scholar
    • Bugl, B. M., Balz, F. P. and Kanbach, D. K. (2022) Leveraging smart capital through corporate venture capital: A typology of value creation for new venture firms. Journal of Business Venturing Insights, 17: e00292. CrossrefGoogle Scholar
    • Bygrave, W. D. (1987) Syndicated investments by venture capital firms: A networking perspective. Journal of Business Venturing, 2: 139–154. CrossrefGoogle Scholar
    • Cable, D. and Shane, S. (1997). A prisoner’s dilemma approach to entrepreneur-venture capitalist relationships. The Academy of Management Review, 22: 142–176. CrossrefGoogle Scholar
    • Callahan, J. and Muegge, S. (2003). Venture capital’s role in innovation: Issues, research and stakeholder interests. The International Handbook on Innovation, 641–663. CrossrefGoogle Scholar
    • Chahine, S., Arthurs, J. D., Filatotchev, I. and Hoskisson, R. E. (2012) The effects of venture capital syndicate diversity on earnings management and performance of IPOs in the US and UK: An institutional perspective. Journal of Corporate Finance, 18: 179–192. CrossrefGoogle Scholar
    • Chemmanur, T., Loutskina, E. and Tian, X. (2014) Corporate venture capital, value creation, and innovation. Review of Financial Studies, 27: 2434–2473. CrossrefGoogle Scholar
    • Cheng, C. Y. (2012) Determinants of early entry: Governance choices and syndicate networks in US venture capitals’ Internet investments. Service Industries Journal, 32: 2219–2232. CrossrefGoogle Scholar
    • Chesbrough, H. (2000) Designing corporate ventures in the shadow of private venture capital. California Management Review, 42: 31–49. CrossrefGoogle Scholar
    • Chesbrough, H. (2002) Making sense of corporate venture capital. Harvard Business Review, 80: 90–99. Google Scholar
    • Colombo, M. G., Croce, A. and Murtinu, S. (2014) Ownership structure, horizontal agency costs and the performance of high-tech entrepreneurial firms. Small Business Economics, 42: 265–282. CrossrefGoogle Scholar
    • Colombo, M. G. and Murtinu, S. (2017) Venture capital investments in Europe and portfolio firms’ economic performance: Independent versus corporate investors. Journal of Economics and Management Strategy, 26: 35–66. CrossrefGoogle Scholar
    • Colombo, M. G. and Shafi, K. (2016) Swimming with sharks in Europe: When are they dangerous and what can new ventures do to defend themselves? Strategic Management Journal, 37: 2307–2322. CrossrefGoogle Scholar
    • Connelly, B. L., Hoskisson, R. E., Tihanyi, L. and Trevis Certo, S. (2010) Ownership as form of corporate governance. Journal of Management Studies, 47: 1561–1589. CrossrefGoogle Scholar
    • Corley, K. G. and Gioia, D. A. (2004) Identity ambiguity and change in the wake of a corporate spin-off. Administrative Science Quarterly, 49: 173–208. CrossrefGoogle Scholar
    • Cresswell, J. W. (2004) Research Design: Qualitative and Quantitative Approach, 4th edn. SAGE, California. Google Scholar
    • Cumming, D., Fleming, G. and Schwienbacher, A. (2005) Liquidity risk and venture capital finance. Financial Management, 34: 77–105. CrossrefGoogle Scholar
    • Cumming, D., Grilli, L. and Murtinu, S. (2017) Governmental and independent venture capital investments in Europe: A firm-level performance analysis. Journal of Corporate Finance, 42: 439–459. CrossrefGoogle Scholar
    • Czarniawska-Joerges, B. (1995) Narration or science? Collapsing the division in organization studies. Organization, 2: 11–33. CrossrefGoogle Scholar
    • Dai, N. and Nahata, R. (2016) Cultural differences and cross-border venture capital syndication. Journal of International Business Studies, 47: 140–169. CrossrefGoogle Scholar
    • Davila, A., Foster, G. and Gupta, M. (2003) Venture capital financing and the growth of startup firms. Journal of Business Venturing, 18: 689–708. CrossrefGoogle Scholar
    • DiCicco-Bloom, B. and Crabtree, B. F. (2006). The qualitative research interview. Medical Education, 40: 314–321. CrossrefGoogle Scholar
    • Dopfer, M., Fallahi, S., Kirchberger, M. and Gassmann, O. (2017) Adapt and strive: How ventures under resource constraints create value through business model adaptations. Creativity and Innovation Management, 26: 233–246. CrossrefGoogle Scholar
    • Du, Q. (2016) Birds of a feather or celebrating differences? The formation and impacts of venture capital syndication. Journal of Empirical Finance, 39: 1–14. CrossrefGoogle Scholar
    • Dushnitsky, G. and Lavie, D. (2010) How alliance formation shapes corporate venture capital investment in the software industry: A resource-based perspective. Strategic Entrepreneurship Journal, 4: 22–48. CrossrefGoogle Scholar
    • Dushnitsky, G. and Lenox, M. J. (2006) When does corporate venture capital investment create firm value? Journal of Business Venturing, 21: 753–772. CrossrefGoogle Scholar
    • Dushnitsky, G. and Shapira, Z. (2010) Entrepreneurial finance meets organizational reality: Comparing investment practices and performance of corporate and independent venture capitalists. Strategic Management Journal, 31: 990–1017. CrossrefGoogle Scholar
    • Dushnitsky, G. and Shaver, J. M. (2009) Limitations to interorganizational knowledge acquisition: The paradox of corporate venture capital. Strategic Management Journal, 30: 1045–1064. CrossrefGoogle Scholar
    • Eisenhardt, K. M. and Schoonhoven, C. B. (1996) Resource-based view of strategic alliance formation: Strategic and social effects in entrepreneurial firms. Organization Science, 7: 136–150. CrossrefGoogle Scholar
    • Eisenhardt, K. M. (1989) Building theories from case study research. Academy of Management Review, 14: 532–550. CrossrefGoogle Scholar
    • Ernst, H., Witt, P. and Brachtendorf, G. (2005) Corporate venture capital as a strategy for external innovation: An exploratory empirical study. R&D Management, 35: 233–242. CrossrefGoogle Scholar
    • Ferrary, M. and Granovetter, M. (2009) The role of venture capital firms in Silicon Valley’s complex innovation network. Economy and Society, 38: 326–359. CrossrefGoogle Scholar
    • Galloway, T. L., Miller, D. R., Sahaym, A. and Arthurs, J. D. (2017) Exploring the innovation strategies of young firms: Corporate venture capital and venture capital impact on alliance innovation strategy. Journal of Business Research, 71: 55–65. CrossrefGoogle Scholar
    • Gioia, D. A., Corley, K. G. and Hamilton, A. L. (2013) Seeking qualitative rigor in inductive research: Notes on the Gioia methodology. Organizational Research Methods, 16: 15–31. CrossrefGoogle Scholar
    • Glaser, B. G. and Strauss, A. L. (1967) The discovery of grounded theory. The Discovery of Grounded Theory, 2nd edn. Routledge, New York. Google Scholar
    • Gompers, P., Mukharlyamov, V. and Xuan, Y. (2016) The cost of friendship. Journal of Financial Economics, 119: 626–644. CrossrefGoogle Scholar
    • Gompers, P. and Lerner, J. (2000). The determinants of corporate venture capital success: Organizational structure, incentives, and complementarities. Working Paper No. 6725, National Bureau of Economic Research, pp. 17–54. Google Scholar
    • Grilli, L., Latifi, G. and Mrkajic, B. (2019) Institutional determinants of venture capital activity: An empirically driven literature review and a research agenda. Journal of Economic Surveys, 33: 1094–1122. CrossrefGoogle Scholar
    • Grilli, L. and Murtinu, S. (2014) Government, venture capital and the growth of European high-tech entrepreneurial firms. Research Policy, 43: 1523–1543. CrossrefGoogle Scholar
    • Grilli, L. and Murtinu, S. (2015) New technology-based firms in Europe: Market penetration, public venture capital, and timing of investment. Industrial and Corporate Change, 24: 1109–1148. CrossrefGoogle Scholar
    • Hill, S. and Birkinshaw J. (2008). Strategy-organization configurations in corporate venture units: Impact on performance and survival. Journal of Business Venturing, 23: 423–444. CrossrefGoogle Scholar
    • Hill, S.A. and Birkinshaw, J. [2014]. Ambidexterity and survival in corporate venture units. Journal of Management, 40: 1899–1931. CrossrefGoogle Scholar
    • Hochberg, Y., Ljungqvist, A. and Lu, Y. (2007) Whom you know matters: Venture capital networks and investment performance. The Journal of Finance, 62: 251–301. CrossrefGoogle Scholar
    • Hollweck, T. (2016). Robert K. Yin . (2014) Case Study Research Design and Methods, 5th edn., California. The Canadian Journal of Program Evaluation, 30: 108–110. CrossrefGoogle Scholar
    • Hsu, D. H. (2004) What do entrepreneurs pay for venture capital affiliation? Journal of Finance, 59: 1805–1844. CrossrefGoogle Scholar
    • Hunter, M. (2012) Creating qualitative interview protocols. International Journal of Sociotechnology and Knowledge Development, 4: 1–16. CrossrefGoogle Scholar
    • Ivanov, V. I. and Xie, F. (2010) Do corporate venture capitalists add value to start-up firms? Evidence from IPOs and acquisitions of VC-backed companies. Financial Management, 39: 129–152. CrossrefGoogle Scholar
    • Jääskeläinen, M. (2012) Venture capital syndication: Synthesis and future directions. International Journal of Management Reviews, 14: 444–463. CrossrefGoogle Scholar
    • Jick, T. (1979) Mixing qualitative and quantitative methods: Triangulation in action. Administrative Science Quarterly, 24: 602–611. CrossrefGoogle Scholar
    • Kang, S. (2019) The impact of corporate venture capital involvement in syndicates. Management Decision, 57: 131–151. CrossrefGoogle Scholar
    • Kerr, W. R., Nanda, R. and Rhodes-Kropf, M. (2014) Entrepreneurship as experimentation. Journal of Economic Perspectives, 28: 25–48. CrossrefGoogle Scholar
    • Leeman, N. and Kanbach, D. K. (2021) Toward a taxonomy of dynamic capabilities — A systematic literature review. Management Research Review, 45: 486–501. https://doi.org/10.1108/MRR-01-2021-0066 CrossrefGoogle Scholar
    • Lei, Z., Gupta, A. K. and Hallen, B. L. (2017) The conditional importance of prior ties: A group-level analysis of venture capital syndication. Academy of Management Journal, 60: 1360–1386. Google Scholar
    • Lerner, J. (1994) The Syndication of venture capital investments. Financial Management, 23: 16–27. CrossrefGoogle Scholar
    • Li, Y. and Mahoney, J. T. (2011) When are venture capital projects initiated? Journal of Business Venturing, 26: 239–254. CrossrefGoogle Scholar
    • Lockett, A. and Wright, M. (2001) The syndication of venture capital investments. Omega, 29: 375–390. CrossrefGoogle Scholar
    • Macht, S. A. and Robinson, J. (2009) Do business angels benefit their investee companies? International Journal of Entrepreneurial Behaviour and Research, 15: 187–208. CrossrefGoogle Scholar
    • MacMillan, I., Roberts, E., Livada, V. and Wang, A. (2008) Corporate Venture Capital (CVC) Seeking Innovation and Strategic Growth: Recent Patterns in CVC Mission, Structure, and Investment. National Institute of Standards and Technology, Gaithersburg. Google Scholar
    • Makarevich, A. (2018) Performance feedback as a cooperation “switch”: A behavioral perspective on the success of venture capital syndicates among competitors. Strategic Management Journal, 39: 3247–3272. CrossrefGoogle Scholar
    • Manigart, S., Lockett, A., Meuleman, M., Wright, M., Landström, H., Bruining, H., Desbrières, P. and Hommel, U. (2006) Venture capitalists’ decision to syndicate. Entrepreneurship: Theory and Practice, 30: 131–153. CrossrefGoogle Scholar
    • Maula, M., Autio, E. and Murray, G. (2003) Prerequisites for the creation of social capital and subsequent knowledge acquisition in corporate venture capital. Venture Capital, 5: 117–134. CrossrefGoogle Scholar
    • Maula, M., Autio, E. and Murray, G. (2005) Corporate venture capitalists and independent venture capitalists: What do they know, who do they know and should entrepreneurs care? Venture Capital, 7: 3–21. CrossrefGoogle Scholar
    • Maula, M., Keil, T. and Zahra, S. A. (2013) Top management’s attention to discontinuous technological change: Corporate venture capital as an alert mechanism. Organization Science, 24: 926–947. CrossrefGoogle Scholar
    • Maula, M. and Murray, G. (2017) Corporate venture capital and the creation of US public companies: The impact of sources of venture capital on the performance of portfolio companies. Creating Value: Winners in the New Business Environment. Wiley, New York, pp. 161–183. CrossrefGoogle Scholar
    • Maula, M. (2001). Corporate venture capital and the value-added for technology-based new firms. Doctoral Dissertation, Helsinki University of Technology, pp. 1–208. Google Scholar
    • Nahapiet, J. and Ghoshal, S. (1998) Creating organizational capital through intellectual and social capital. Academy of Management Review, 23: 242–266. CrossrefGoogle Scholar
    • Nanda, R. and Rhodes-Kropf, M. (2018). Coordination frictions in venture capital syndicates. Working Paper No. 24517, National Bureau of Economic Research. Google Scholar
    • Napp, J. J. and Minshall, T. (2011) Corporate venture capital investments for enhancing innovation: Challenges and solutions. Research Technology Management, 54: 27–36. CrossrefGoogle Scholar
    • Park, S., LiPuma, J. A. and Park, S. S. (2019) Concentrating too hard? Foreign and corporate venture capital involvement in syndicates. Journal of Small Business Management, 57: 327–342. CrossrefGoogle Scholar
    • Park, J. and Park, M. (2016) Qualitative versus quantitative research methods: Discovery or justification? Journal of Marketing Thought, 3: 1–7. Google Scholar
    • Park, H. D. and Steensma, H. K. (2012) When does corporate venture capital add value for new ventures? Strategic Management Journal, 33: 1–22. CrossrefGoogle Scholar
    • Pettigrew, A. (1992) The character and significance of strategy process research. Strategic Management Journal, 13: 5–16. CrossrefGoogle Scholar
    • Puri, M. and Zarutskie, R. (2012) On the life cycle dynamics of venture-capital- and non-venture capital-financed firms. The Journal of Finance, 67: 2247–2293. CrossrefGoogle Scholar
    • Randolph, J. (2009) A guide to writing the dissertation literature review. Practical Assessment, Research, and Evaluation, 14: 13. Google Scholar
    • Riepe, J. and Uhl, K. (2020) Startups’ demand for non-financial resources: Descriptive evidence from an international corporate venture capitalist. Finance Research Letters, 36: 101321. CrossrefGoogle Scholar
    • Riyanto, Y. E. and Schwienbacher, A. (2006) The strategic use of corporate venture financing for securing demand. Journal of Banking & Finance, 30: 2809–2833. CrossrefGoogle Scholar
    • Röhm, P. (2018) Exploring the landscape of corporate venture capital: A systematic review of the entrepreneurial and finance literature. Management Review Quarterly, 68: 279–319. CrossrefGoogle Scholar
    • Rossi, M., Festa, G., Papa, A. and Scorrano, P. (2019) Corporate venture capitalists’ ambidexterity: Myth or truth? IEEE Transactions on Engineering Management, 68: 430–441. CrossrefGoogle Scholar
    • Rossi, M., Festa, G., Fiano, F. and Giacobbe, R. (2020a) To invest or to harvest? Corporate venture capital ambidexterity for exploiting/exploring innovation in technological business. Business Process Management Journal, 26: 1157–1181. CrossrefGoogle Scholar
    • Rossi, M., Festa, G., Papa, A., Kolte, A. and Piccolo, R. (2020b) Knowledge management behaviors in venture capital crossroads: A comparison between IVC and CVC ambidexterity. Journal of Knowledge Management, 24: 2431–2454. CrossrefGoogle Scholar
    • Rossi, M., Martini, E. and Kolte, A. (2021) The role of venture capitalists in an organized innovation ecosystem: Evidence from the USA. International Journal of Business Environment, 12: 265–286. CrossrefGoogle Scholar
    • Sahlman, W. A. (1990) The structure and governance of venture-capital organizations. Journal of Financial Economics, 27: 473–521. CrossrefGoogle Scholar
    • Smith, D. G. (1998) Venture capital contracting in the information age. The Journal of Small & Emerging Business Law, 2: 133–176. Google Scholar
    • Sorenson, O. and Stuart, T. E. (2001) Syndication networks and the spatial distribution of venture capital investments. American Journal of Sociology, 106: 1546–1588. CrossrefGoogle Scholar
    • Souitaris, V., Zerbinati, S. and Liu, G. (2012) Which iron cage? Endo- and exoisomorphism in corporate venture capital programs. Academy of Management Journal, 55: 477–505. CrossrefGoogle Scholar
    • Steier, L. and Greenwood, R. (1995) Venture capitalist relationships in the deal structuring and post-investment stages of new firm creation. Journal of Management Studies, 32: 337–357. CrossrefGoogle Scholar
    • Tian, X. (2012) The role of venture capital syndication in value creation for entrepreneurial firms. Review of Finance, 16: 245–283. CrossrefGoogle Scholar
    • Tranfield, D., Denyer, D. and Smart, P. (2003) Towards a methodology for developing evidence-informed management knowledge by means of systematic review. British Journal of Management, 14: 207–222. CrossrefGoogle Scholar
    • Wadhwa, A. and Kotha, S. (2006) Knowledge creation through external venturing: Evidence from the telecommunications equipment manufacturing industry. Academy of Management Journal, 49: 819–835. CrossrefGoogle Scholar
    • Weber, C. and Weber, B. (2005) Corporate venture capital organizations in Germany. Venture Capital, 7: 51–73. CrossrefGoogle Scholar
    • Weiblen, T. and Chesbrough, H. W. (2015) Engaging with startups to enhance corporate innovation. California Management Review, 57: 66–90. CrossrefGoogle Scholar
    • Weiss, L. and Kanbach, D. K. (2021) Toward an integrated framework of corporate venturing for organizational ambidexterity as a dynamic capability. Management Review Quarterly. https://link.springer.com/article/10.1007/s11301-021-00223-y#citeas. CrossrefGoogle Scholar
    • Wendt, T. (2019). Five things companies get wrong about corporate venture capital. Bain & Company. Available at https://www.bain.com/insights/five-things-companies-get-wrong-about-corporate-venture-capital/. Google Scholar
    • Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D. and Jiang, Y. (2008) Corporate governance in emerging economies: A review of the principal-principal perspective. Journal of Management Studies, 45: 196–220. CrossrefGoogle Scholar
    • Zhang, Y. (2018) Gain or pain? New evidence on mixed syndication between governmental and private venture capital firms in China. Small Business Economics, 51: 995–1031. CrossrefGoogle Scholar
    • Zhelyazkov, P. and Gulati, R. (2016). After the break-up: The relational and reputational consequences of withdrawals from venture capital syndicates. Academy of Management Journal, 59: 277–301. CrossrefGoogle Scholar