Keep Your Enemies Closer: The Appropriation Risk to Start-ups Receiving CVC Funding
Empirical findings of the performance implications for CVC-backed ventures are equivocal. In this study, we seek to answer how potential benefits of CVC investments for the investee venture are compromised by the extent to which the latter is considered a direct competitor to the parent corporation. We show that CVC-backed ventures produce more patents and experience higher chance of survival than their non-CVC-backed counterparts. As the technology between the parent corporation and the investee venture becomes more similar, the latter experiences a decrease in both the funding amount and the number of patents. These negative effects, however, are mitigated by the extent to which the venture’s product boosts the demand for the parent firm’s technology. Problem space overlap and technology proximity are positively correlated with the likelihood of the venture being acquired by the corporate parent, though CVC-acquirers do not seem to acquire their invested ventures at a discount.
Once bitten, twice shy? How lawsuits against parent firms affect their CVCs' investment directions
Until recently, whether lawsuits filed by startups have any deterrent effect on a corporate venture capital (CVC) firm’s subsequent investment activity has been neglected in the literature of entrepreneurial finance. Using a comprehensive dataset of active corporate lawsuits in the US from 1988 to mid-2022, we find that following a lawsuit in a particular area against its parent firm, the CVC unit increases its investments in the litigated area. Certain aspects of investment remain the same, while others such as investment in minority founders and early-stage startups shows some improvement. We provide additional evidence on the mechanisms that may help explain this seemingly counterintuitive result.