Companies, with few exceptions, become more bureaucratic and less innovative as they grow. To counter this tendency, many firms, including the Intel Corporation and IBM, have developed internal corporate venture capital (CVC) arms to supplement their internal R&D efforts. The idea of CVC is to identify and invest in innovative startups, with an eye toward licensing their new technologies or buying the promising companies outright. But does this practice work better than investing more heavily in internal R&D? The authors of this paper suggest that the two approaches should not be mutually exclusive, and that CVC is most effective when companies start with a strong R&D program. Using patent filings as a proxy to measure innovation, the authors conclude that firms with robust R&D teams are better able to assimilate and support the learning gleaned from working with startups funded through a firm’s CVC efforts. They also found that making small CVC investments in a large number of firms was more fruitful than making larger investments in fewer firms.
Authors: Daniel C. Robeson, Gautam Kasthurirangan
Source: Rensselaer Polytechnic Institute Working Paper