Financing innovation: two models of private equity investment

Laure-Anne Parpaleix (), Kevin Levillain () and Blanche Segrestin ()
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Laure-Anne Parpaleix: CGS i3 - Centre de Gestion Scientifique i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique
Kevin Levillain: CGS i3 - Centre de Gestion Scientifique i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique
Blanche Segrestin: CGS i3 - Centre de Gestion Scientifique i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique

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Abstract: The ability to adapt to fast-paced business change has become critical to firms' competitiveness. Thus, it requires firms to continuously innovate. Extensive research efforts have been conducted to understand the drivers behind a firm's capacity to constantly innovate. If significant advance has been made in the fields of innovation management and design theory, there is still a need for research in finance to integrate these developments. Especially in clarifying the relationship between private equity investment and corporate innovation. Thus, this paper specifically aims at exploring new investment models in private equity to support the development of firm's sustained innovation capabilities. Based on a literature review exploring the existing private equity investment practices and their potential links with innovation, we highlight the main model used by private equity. We show that this model cannot account for the two design regimes (extracted from design theories) required to support innovation capabilities. Therefore, we build a second hypothetical model that could complement the first one to do so. We then conduct an empirical study to assess whether actual private equity funds' practices reflect the use of this second hypothetical model, and if so to refine it. From a managerial point of view, this research contributes to shape new valuation approaches and post-investment strategies that better foster invested firm's innovation capabilities, among which R&D activities.

Date: 2018-07-02
New Economics Papers: this item is included in nep-cfn, nep-fmk, nep-ino, nep-ppm and nep-sbm
Note: View the original document on HAL open archive server: https://hal.science/hal-01768986v2
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Published in R&D Management Conference 2018 “R&Designing Innovation: Transformational Challenges for Organizations and Society” , Jul 2018, Milan, Italy

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