Corporate venture capital investment strategies, goals and outcomes vary greatly depending on the background of the investment manager, a University of California, Davis, and Insead study shows.
In an analysis of the corporate venturing units of 93 US-based information technology firms, researchers Gina Dokko at UC Davis and Vibha Gaba, an assistant professor at Insead business school in France, found that if managers had private venture capital backgrounds, they tended to invest in start-ups with high-growth prospects – and had less regard for their technological or strategic fit with the corporate parent.
On the other hand, if managers came from inside the corporate parent, or had a strong technical background themselves, they tended to invest in start-ups that could fill a strategic need in the larger corporation.
The finding affirms that the experiences of the people who work for an organisation shape its functions in important ways – and that this is true not just at the top.
Dokko, an assistant professor at the UC Davis Graduate School of Management, said: "It is widely understood that the leaders of corporations have strong effects on the organisations, but we show that individuals at lower levels can also affect the way organisational practices are conducted."
The study, Venturing into New Territory: Career Experiences of Corporate Venture Capital Managers and Practice Variation, is scheduled to be published in the June 2012 issue of Academy of Management Journal.
Starting in the 1990s, many large US companies started setting up in-house investment units. Doing so enabled corporations to gain a stake in promising start-ups with the potential not only to make money but also to give the larger corporation access to new technologies, patents and intellectual property.
By 2001, more than 300 US firmshad established corporate venturing units. The corporate share of venture capital rose from 2% in 1994 to 17% at its peak in 2000.
In the years 2002 to 2006, the share levelled at 6% to 8%, according to US trade body the National Venture Capital Association.
But the way venturing units function varies widely, Dokko and Gaba found. Dokko said: "Corporate venture capital managers with an independent venture capital background are more oriented toward financial goals. We also found they are more likely to make investments in earlier-stage start-ups. They tend to be less focused about the industries they invest in. They are just looking for something that appears very promising."
Those with technology backgrounds, however, showed a different investment pattern.The researchers wrote: "Managers who came to the job with technology backgrounds or from within the corporation tended to invest in a narrower range of start-ups, typically with a technological orientation that could help the larger firm."
Using corporate websites, LinkedIn, and other sources, the researchers determined the career backgrounds of the 311 corporate venturing and investment managers at 93 US-based information technology firms- whether they had worked for independent venture capital firms, had been hired from within the corporation or had technical backgrounds.
Using venture capital databases, the researchers then determined the approach of the units to the timing and industry focus of investment, as well as their orientation toward financil or strategic goals. Through statistical analyses, the researchers determined how the backgrounds of the managers affected the approaches and goals of the venturing units.
This article has been edited from the UC Davis release at www.news.ucdavis.edu/search/news_detail.lasso?id=10125