Over the past decade, billions of dollars have been invested by establish companies in entrepreneurial ventures, yet, there is little systematic evidence whether such investment creates value to investing firms. Also known as Corporate Venture Capital (CVC), investment levels have oscillated dramatically since the appearance of CVC funds in the 1960’s. We attempt to shed light on the conditions under which corporate venture capital lead to the creation of firm value. Previous work reports that entrepreneurial ventures funded by established firms experience favorable valuation at IPO. The focus of this paper, however, is the benefits to the investing firm. The benefits have been found to vary widely across CVC programs. We propose that variance in CVC performance can be explained by differences in the orientation of CVC funds, as some firms seek direct financial returns on investment while others pursue indirect strategic benefits.

This study supplements existing work in two ways. First, we study the conditions under which CVC investment creates value for investing firms. By looking at value creation, we go beyond narrow financial returns and capture both the financial returns and the strategic benefits. Second, we employ a panel of about 1,200 US public firms during the period 1990-1999. Whereas previous literature relies on case studies or small size descriptive surveys, the use of extensive archival data allows us to study the impact on firm’s value creation while controlling for macroeconomic conditions, industry environment and firm characteristics. Specifically, we control for confounding effects due to cross-industry differences, intra-industry factors (e.g., temporal changes), and intra-industry heterogeneity in firms’ attributes.