Industry-relatedness, geographic proximity and strategic decisions of corporate and independent venture capital-backed companies

ABSTRACT

In this paper, we use the essential dichotomy between independent venture capital (IVC) and corporate venture capital (CVC) to investigate the investment mechanisms that lead venture-backed companies to take different successful exit routes, that is, an initial public offering (IPO) or an acquisition. Through an analysis of a sample of 4206 US companies, we find that CVC-backed companies have a longer investment duration and a larger investment amount than IVC-backed companies. Our analysis reveals that geographic distance and industry-relatedness are influential for the success of the company. We show that industry-relatedness is more likely to lead to an acquisition exit while geographic proximity rather fosters IPO exits.

KEYWORDS:

• Corporate venture capital
• independent venture capital
• geographic proximity
• industry-relatedness
• exit route

Acknowledgments

We thank Rebel Cole, Emmanuelle Dubocage, Hans Landstrom, Jean-Michel Sahut, Masatoshi Kato (the Editor), an anonymous reviewer, as well as the participants in the 2016 Nordic Conference on Small Business Research (NCSB), the 2nd Abbé Grégoire Innovation Day and the 35th Global Finance Conference (GFC) for providing insightful comments and suggestions. Any remaining errors are the responsibility of the authors.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ An anonymous reviewer suggested to use this CVC domination variable instead of the CVC dummy variable. We conducted all the analyses with this variable and present the results in the robustness check section. The results are highly similar. We are very grateful to the anonymous reviewer for this insightful suggestion.

² We prefer to include time fixed-effects rather than including all these elements separately since it is highly probable that some variables can not be retrieved. Including year and industry fixed-effects ensures that all time-specific and industry-specific factors are controlled for.

³ Interested readers should refer to Kiefer (1988) for the theoretical background and Bottazzi and Da Rin (2002) for additional information.