Research Chatter 3: Can Big Companies Succeed as Venture Capitalists?

This month we meet up in person at the SMS conference in Denver. In our free-wheeling, face to face discussion we talk about research on corporate venture capital. When big companies invest in speculative ventures, like Google’s billion dollar investment in Space X, does it payoff? Can companies learn from their investments? How?

Research cited in the discussion:

  1. “The determinants of corporate venture capital success” Gompers and Lerner, NBER 2000. http://www.nber.org/chapters/c9004.pdf
  2. “When do incumbents learn from entrepreneurial ventures?” Dushnitsky and Lenox, Research Policy 2005. http://www.sciencedirect.com/science/article/pii/S0048733305000442
  3. “Knowledge creation through external venturing” Wadhwa and Kotha, Academy of Management Journal 2006. http://amj.aom.org/content/49/4/819.short
  4. “Corporate Venture Capital: Seeking Innovation and Strategic Growth” Macmillan et al, NIST. http://www.atp.nist.gov/eao/gcr_08_916_nist4_cvc_073108_web.pdf
  5. “Limitations to interorganizational knowledge acquisition” Dushnitsky and Shaver Strategic Management Journal 2009. http://onlinelibrary.wiley.com/doi/10.1002/smj.781/abstract
  6. “Corporate venture capital and the returns to acquiring portfolio companies” Benson and Ziedonis Journal of Financial Economics 2010. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1681165

To see more research on CVC, check out the Strategic Management Journal special virtual issue on corporate venturing here: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1097-0266/homepage/corporate_venturing_vsi_articles.htm


2 thoughts on “Research Chatter 3: Can Big Companies Succeed as Venture Capitalists?

  1. Just listened to this. On CVC, I think there is a critical aspect that distinguishes an Intel with its long-term commitment from other firms: They have a near monopoly in their core market and so can internalize the gains to complementary (microprocessor-using) products and services.

    On the OODA idea, this has little to do with dynamic capabilities, which is a meta-level moderator of operating capabilities (to the extent it has any determinate meaning at all). OODA is a characteristic of one’s operating routine, e.g. a dogfighting fighter pilot (Boyd’s original context). It applies to zero-sum games and could be thought of as a behavioral strategy addition to the theory of differential games; in a world where OODA is relevant, there is, for example, no value to commitment. The field definitely needs a better integrative theory of out-OODA-ing rivals versus/and achieving first-mover advantages via commitment. The existing flexibility v. commitment stuff focuses flexibility entirely on reacting to “nature” rather than better speed of competitive response. And the “competitive dynamics” literature has no actual theory, just a discussion of all the things that might matter.

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    1. Steve, thanks for your comments. The “internalization” argument has cool testable implications – has Intel’s CVC quality eroded as they’ve lost ground in mobile? Does Google’s CVC vary significantly across its core advertising markets and the other moonshot investments?

      I agree completely that it’s important to be careful about where these theories emerged and where they apply. Stretching a theory too far from its origins often renders it useless – I’m talking to you absorptive capacity! I hadn’t thought about the level of analysis difference between OODA and Dynamic Capabilities.

      I only just learned about the OODA framework, but what it reminds me of is the notion of feedback loops in business models. I think there’s room for really interesting work on how commitments and feedback systems interact. A great recent example for me is Buzzfeed. No question the company has mastered getting pageviews. But unlike most other media companies, they are not built on profit per pageview – they are making money from developing sponsored content. I think it keeps them a bit more flexible than flash in the pan upstarts like upworthy that get a great formula for views but get stuck when conditions change.

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