The Determinants of Corporate Venture Capital Successes: Organizational Structure, Incentives, and Complementarities

Paul Gompers and Josh Lerner

No 6725, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine a sample of over thirty thousand transactions by corporate and other venture organizations. Corporate venture investments in entrepreneurial firms appear to be at least as successful (using such measures as the probability of the portfolio firm going public) as those backed by independent venture organizations, particularly when there is a strategic overlap between the corporate parent and the portfolio firm. While corporate vendue capitalists tend to invest at a premium to other firms, this premium appears to be no higher in investments with a strong strategic fit. Finally, corporate programs without a strong strategic focus appear to be much less stable, frequently ceasing operations after only a few investments, but strategically focused programs appear to be as stable as independent venture organizations. The evidence is consistent with the existence of complementarities that allow corporations to effectively select and add value to portfolio firms, but is somewhat at odds with suggestions that the structure of corporate venture funds limits their effectiveness.

Date: 1998-09
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Published as Morck, Randall (ed.) Concentrated Corporate Ownership. Chicago: Universityof Chicago Press for NBER, 2000.
Published as The Determinants of Corporate Venture Capital Success: Organizational Structure, Incentives, and Complementarities , Paul Gompers, Josh Lerner. in Concentrated Corporate Ownership , Morck. 2000

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