The anatomy of a corporate venturing program: Factors influencing success

The author proposes a classification framework for factors that affect corporate venture success. Then, a database of 37 new venture investments by Exxon, including 18 venture capital investments, is analyzed for insight into the relative affect of these factors on venture technical and financial success. This article presents a statistical analysis of those factors which were quantified.As a group the venture capital investments were financially far more successful for Exxon than the internally initiated ventures. This striking difference stimulated the retrospective analysis reported here. The author was in a position to observe the program over its entire life span and had first-hand knowledge of each venture's technology, markets, and personnel. Because of the mix of venture capital and internal investments, the author was also in a position to compare the two modes of investment.Factors affecting venture success are broadly classified as extrinsic and intrinsic. Extrinsic or environmental factors are those determined by the form of investment sponsorship (e.g., corporate or venture capital) and the characteristics of the investment sponsor. Extrinsic factors are segregated into two categories: structural and procedural. These factors are defined as the degree of difference between the corporate and venture environment in each category.The four structural factors (technology, market, organization, and people) are summed up as the overall degree of structural congruence. The author postulates that the degree of congruence is directly related to venture success within the corporation. To take the corporation into new markets some incongruence is required. Too much incongruence probably pushes the risk of failure too high. The corporation's procedures for management of this incongruence will determine the degree to which it can successfully diversify its business.The four procedural factors (control, selection of venture managers, incentive compensation, and financing) are dealt with as differences between the corporate environment and an independent venture environment. Major differences in procedural factors usually exist between corporate and venture capital sponsored ventures. They probably explain to some extent the relative greater financial success of the Exxon venture capital investments as a group. However, the statistical analysis results indicate that the identified intrinsic factors are more important in explaining relative venture success.Intrinsic factors are those inherent to the venture itself, and are subdivided into two categories: product related (market and technical risk levels) and managerial (relative experience levels). Each of the 37 Exxon ventures was rated for success and for the intrinsic factors using a simple ordinal range of 3 to 6 values. The product related risk factors showed a significant inverse correlation with financial success. The level of venture managers' prior experience in the venture's target market area and their level of prior general managerial experience showed an even greater correlation with financial success. The sample correlation coefficient between the financial success rating SF and the sum of the ratings for prior marketing and managerial experience (XS + XM) was 0.809 with a standard error of only 0.105.Selection of the influential extrinsic and intrinsic factors is largely within the control of corporate management. An approach to selection of these factors similar to that used by private venture capital fund managers should greatly improve the overall success of internal corporate ventures.     

Value proposition evolution and the performance of internal corporate ventures

The success of internal corporate ventures (ICVs) is contingent upon their ability to: (1) anticipate the bases on which their offerings appeal to their target markets, (2) adjust these value propositions as the venture develops, and (3) leverage their parent corporations' relevant knowledge stocks. Aimed at developing a deeper understanding of the process requirements of successful exploratory initiatives, we build and test a model of venture performance using data from 145 ICVs. We find that value proposition evolution is related to venture performance in a curvilinear manner. ICVs whose value propositions exhibit moderate evolution perform better than ICVs whose value propositions exhibit no evolution or extensive evolution. Furthermore, the value proposition evolution–performance relationship is moderated by the parent corporation's familiarity with the venture's target market.     

Short leash or long leash? Parenting style,initial strategic clarity,and the development of venture learning proficiency

Corporate venture development suggests that internal corporate ventures (ICVs) must become proficient learners if they are to cope successfully with the uncertainty inherent to their operations. Accordingly, the parent corporations in which ICVs operate are challenged to identify and enact appropriate parenting styles that foster their ICVs' learning proficiency. The current research of 145 ICVs in 72 corporations builds on parenting theory to theorize that ICVs demonstrate the greatest learning proficiency when corporate parents give them a “leash length”—indicated via observed levels of top management support and operational decision-making autonomy—depending on the degree of strategic clarity under which the ICV was founded.     

New venture internationalization: The role of venture capital types and reputation

This study examines how different types of venture capital relate to new venture internationalization. Using a sample of 646 U.S. new ventures that executed IPOs between 1995 and 2010, we find that ventures with foreign or corporate venture capital have higher levels of international intensity. We also investigate the moderating role of VC reputation on the relationship between foreign venture capital and international intensity and corporate venture capital and international intensity. Our results suggest that VC reputation weakens the positive relationship between corporate VC and international intensity.     

When does corporate venture capital investment create firm value?

Over the past decade, billions of dollars have been invested by established companies in entrepreneurial ventures—what is often referred to as corporate venture capital. Yet, there is little systematic evidence that corporate venture capital investment creates value to investing firms. Scholars have suggested that established firms face underlying challenges when investing corporate venture capital. Namely, structural deficiencies inherent in corporate venture capital may inhibit financial gains. However, firm value may still be created as a result of other benefits from investing—primarily providing a window onto novel technology. In this paper, we propose that corporate venture capital investment will create greater firm value when firms explicitly pursue corporate venture capital to harness novel technology. Using a panel of CVC investments, we present evidence consistent with our proposition. The findings are robust to various specifications and remain unchanged even after controlling for unobserved heterogeneity in investing firms. Our results have important implications for corporate venture capital in particular, and technology strategy in general.     

Local government demands more from purchasing

It is axiomatic that functional strategies cascade from corporate objectives. Local government has traditionally had priorities relating to public accountability, local democracy and policy creation. Those traditional goals are now being supplemented with new goals of local economic development and the environment. This paper examines local government goals as a definition of business success criteria. The conclusion arrived at is that local government Purchasing Managers are faced with new and differing demands from the private sector which traditional purchasing strategies fall short of addressing. New strategic options are discussed and tabled.     

Corporate versus independent new ventures: Resource,strategy, and performance differences

This study examines differences between independent ventures (IVs), which are established by individual entrepreneurs, and corporate ventures (CVs), which are controlled by larger companies. It focuses on differences between these ventures related to the resources, strategies, and performance of firms in the computer and communications equipment manufacturing industries. Thus, the findings increase the understanding of the different challenges faced by each venture type and provide insight into how each venture type should be managed.The study finds that managers of CVs and IVs emphasized different resources and strategies. Specifically, CVs emphasized the following resources: internal capital sources, proprietary knowledge, and marketing expertise. IVs emphasized external capital sources, technical expertise, and development of brand identification. They also differed in their strategies; IVs pursued greater strategic breadth, more customer service, and focused more on specialty products. The findings that CVs had less strategic breadth was surprising in that CVs emphasized resources, such as internal capital sources, which could make pursuing broad strategies more feasible for CVs. It is possible that some CVs do not pursue broad strategies because they may be “infringing upon someone else's turf” within the corporation and thus may be discouraged.In spite of finding significant strategy and resource differences, the study found that IVs and CVs did not differ in performance and that resources were not directly related to performance. Based on the concept of equifinality, it follows that both venture types can be equally successful, even if they follow different roads to success. Success may be less a function of the different resources IVs and CVs have and more a function of what strategies the firms choose based upon their resources.Strategy variables did relate to performance: a low cost strategy lowered performance regardless of venture type and the influence of an aggressive strategy (i.e., wide strategic breadth) on performance depended upon venture origin. Managers pursuing a low cost strategy may have had lower performance if they became penny wise and pound foolish, missing opportunities in their efforts to lower costs. This suggests that regardless of venture type, managers of new ventures in these industries and perhaps in other volatile industries may need to be opportunistic.This study indicates that pursuing broad strategies increased the performance of IVs and decreased the performance of CVs. This finding was surprising in that CVs had greater resources, which one might think would lead to successful implementation of aggressive strategies. In securing enough resources to pursue aggressive strategies from their parents, CVs may lose the freedom of action they need to cope with the dynamism of high technology industries. This suggests that managers of CVs within the computer and communications equipment manufacturing industries should either not pursue broad strategies, or if pursuing broad strategy, they should maintain their flexibility. In contrast, IVs that pursued broad strategies achieved higher performance, indicating that perhaps IVs, unencumbered by the bureaucracy that characterizes CVs, may be able to pursue aggressive strategies while simultaneously maintaining flexibility.Thus, this study offers IV and CV managers several valuable insights. First, it argues that managers of each type of venture may need to pursue different strategies to increase venture performance and make optimal use of their unique resources. Furthermore, it suggests that CV managers encounter difficulties in applying resources to strategies and not in accessing resources. Whereas political obstacles may occur, CV managers may primarily encounter these difficulties when trying to implement strategies rather than when accumulating resources from the parent, suggesting a pitfall that managers of CVs and their parents need to avoid. Although this study has indicated that both venture types can be equally successful, it suggests that they may face different obstacles and follow different roads to success.     

Accelerating strategic fit or venture emergence: Different paths adopted by corporate accelerators

Corporate accelerators (CAs) are a fast-emerging form of corporate engagement with startups. Equating them with independent startup accelerators and/or corporate venturing limits our understanding of how and why corporations run CA programs and to what end. In this inductive grounded theory study, we explore how corporations design and run CAs and to what effect. This study of four CAs reveals that corporations manage accelerators via one of two distinct processes: namely, accelerating strategic fit or accelerating venture emergence. Our inductive models of these corporate acceleration processes provide new insights into how CAs operate within corporations. Strategic posture and investment time horizon influence corporations' choice of acceleration path and their identification of potential ventures for acceleration. Our study deconstructs what comprises the core corporate acceleration processes and explains how the two pathways result in distinct outcomes—nurturing innovations or nurturing ecosystems. We believe these findings can open up rich research opportunities for understanding how corporations engage with entrepreneurial ventures to enhance their entrepreneurialness.     

Networking Ability and the Financial Performance of New Ventures: Moderating Effects of Venture Size,Institutional Environment,and Their Interaction

Building on prior research, this study provides insights on the complex interaction between individual, organizational, and environmental factors in the field of new venture success. Specifically, we develop and test hypotheses on how venture size, institutional context, and their interaction moderate the effect of entrepreneurs' networking ability on the financial performance of new ventures. Based on a sample of 283 new ventures in Germany and Brazil—two countries that differ significantly in terms of their institutional frameworks—our analyses reveal moderating effects of venture size and the interaction between venture size and institutional environment.     

Parent inheritance,founder expertise,and venture strategy: Determinants of new venture knowledge impact

A genealogical theory of new venture creation posits that “parent” firm routines are transferred to “progeny” ventures founded by the former employees of these parents. This study examines how the knowledge available to a venture from its parent firms and individual founders, as well as its initial technological direction, influences its own creation of impactful knowledge. We argue that new knowledge creation involves the recombination of underlying knowledge elements and hypothesize that the degree to which the venture's knowledge domain overlaps with the parents' knowledge has positive, but diminishing effects on the impact of knowledge created by the venture. We also predict that the breadth of founders' personal knowledge has a positive effect, but that the divergence between individual founders' and parent firm's knowledge domains has a negative effect on the creation of impactful knowledge by the venture. We test our predictions using a sample of 219 biotechnology ventures founded over the eleven year period 1990–2000 and tracked through 2010. Our results contribute to the entrepreneurship, knowledge creation, and genealogical literatures.     

Concentrating Too Hard? Foreign and Corporate Venture Capital Involvement in Syndicates

We investigate the relationship between investment of corporate venture capital (CVC) and foreign venture capital (FVC), and the concentration of investors involved in a financing round. As forms of venture capital distinct from independent venture capital, CVC and FVC can offer different value to new ventures. However, having FVC or CVC investors in the syndicate can also pose additional risks to other investors. We find that a corporate venture capital or a foreign venture capital affiliation is related to lower concentration of investors. Our results suggest that the investors evaluate not only the venture but also their syndicate partners in determining their relative share of round investment.     

Nonroutine CEO Turnover in Korean Chaebols

This study seeks to assess the relationship between firm performance and nonroutine CEO turnover in Korean conglomerates known as chaebols. Utilizing data collected from a period following the 1997 Asian financial crisis, findings indicate a negative relationship between performance and nonroutine CEO turnover. However, the status of CEOs as chaebol founding family members is also negatively correlated with nonroutine turnover. This research suggests areas where managerial accountability has been improved in chaebol and areas where further improvements are needed. The unique contribution of this study is that it considers corporate governance in chaebols after postfinancial crisis reforms and looks at CEO family membership as a factor.     

Conflicts and Regrets in the Venture Capitalist–Entrepreneur Relationship

The goal of this paper is to examine whether conflicts with venture capitalists (VCs) could prompt chief executive officers (CEOs) to experience regret of action (regarding their poor partner choice) or regret of inaction (regarding their own inability to avert conflict). We argue that it is important to examine such feelings of regret that could motivate CEOs to change their financial intermediation and collaboration strategies in the future. We propose that VCs and CEOs may experience two types of conflict: (1) pacing conflicts regarding the direction and speed of venture advancement driven by perceived inequities in economic and social exchange; and (2) prerogative conflicts about the allocation of control rights and relationship issues driven by the perceived inequities in power relations. We hypothesize that pacing conflicts will be related to increasingly intense prerogative conflicts, whereas the latter will be associated with both types of CEO regret. The proposed model is tested with structural equation modeling techniques applied to the data collected from104 CEOs of VC‐backed ventures. All the hypotheses are supported. Our main finding is that CEOs appear to be ambivalent about their conflict with VCs, regretting both their prior choices as an error of judgment (regret of action) and their own lack of initiative (regret of inaction).     

Performance factors of small tourism ventures: The interface of tourism,entrepreneurship and the environment

Performance factors of small Israeli tourism ventures were examined using an integrated model that combines four theoretical approaches, each focusing on a different central facet: environmental milieu, institutional support, entrepreneurial human capital, and the venture's bundle of services. The current research developed an operational instrument for assessing environmental attractiveness components of tourism ventures and their relationship to performance. A factor analysis, based on this instrument, revealed three environmental factors: tourist-related infrastructure, options for excursions and scenery, including climate. An attractive environment contributed to higher revenues in tourism ventures; however, it did not assure profitability. The results indicate the dual nature of the impact of institutional support upon the tourism venture's performance. Regardless of the size and age of ventures, those obtaining the advisory type of assistance from the governmental tourism incubator performed less well than those ventures that did not obtain such support. By contrast, those tourism ventures that were financially supported by external sources performed better than those that were not financially supported. The explanation for this curious and seemingly contradictory finding may lie in the different criteria for receiving financial and advisory assistance. Success in persuading external sources to provide financial support would seem to be evidence of the soundness of the venture's planning and its economic viability. By contrast, insofar as virtually any venture in the area may apply for and obtain advisory assistance from the governmental tourism incubator, with no requirement to meet financial criteria of any kind, it could be that precisely the weaker ventures are being carried along by this form of assistance.Among the various entrepreneur's attributes examined, managerial skills provided the strongest association with the performance measures. The managerial skills were also found to be the most significant variable explaining performance relatively to the variables derived from the other three approaches. These results have implications regarding the nature of the support to be given by a governmental tourism incubator to entrepreneurs operating in the region. Given that lack of managerial skills is one of the main barriers to a venture's success, particularly in small businesses where the owners have to be involved in all areas of activity, the incubator needs to provide entrepreneurs with tailored regional business and management training tools to promote tourism venture development and success.The study also reveals that the number of services offered by a tourism venture made only a minor contribution in the revenues regression, which may indicate that providing a bundle of services for the tourist customer does not necessarily guarantee profitability. A noteworthy finding is the similarity in the differential association between the number of services offered and the performance measures, on the one hand, and attractiveness features with performance on the other. In both cases, these factors positively contribute to the revenues regression, but neither contributes to the profitability or income regression. This means that an attractive environment does contribute to higher revenues, in that more tourists choose to visit the tourist attractions; however, this does not assure profitability. Similarly, providing many services to the visitors may also contribute to higher revenues, but does not necessarily assure profitable business outcomes. The current findings indicate that small tourism venture profitability is contingent on human capital, especially the skills of the entrepreneurs running the venture. In accordance with our findings that managerial skills are so crucial for venture success, the main objective of advisory incubators should be to promote managerial competencies.     

Will the startup succeed in your eyes? Venture evaluation of resource providers during entrepreneurs' informational signaling

Experienced founders and investors are arguably the venture community members most likely to possess needed financial and social resources for startups. We present a model of venture evaluation where entrepreneurs solicit these resource providers for needed financial and social resources. Our model addresses how resource providers' venture investment propensity influences their evaluation of entrepreneurs' informational signals and how their venture evaluation predicts their willingness to provide financial and social resources. We test our model using real-time decisions and find resource providers with founding experience (both non-investor founders and investors with founding experience) leverage their investment propensity more than non-founder investors when evaluating new ventures. In addition, our post-hoc analysis reveals that resource providers' founding experience is associated with their willingness to confer social resources. Overall, this paper focuses on the perspective of resource providers and addresses how their investment propensity, types of venturing experience, and venture evaluation influence their willingness to render resource support to new ventures.     

Technology strategy and new venture performance: A study of corporate-sponsored and independent biotechnology ventures

New ventures, companies eight years or younger, play a major role in the development of an emerging, high-technology industry. Corporate-sponsored new ventures (those supported by an established corporation) and independent ventures (those founded by independent entrepreneurs) frequently battle for industry leadership and financial success. Whereas both venture types use technology to achieve financial and market success, little is known about the differences in their technology strategies.Technology strategy is the plan that guides a new venture's decisions on the development and use of technological capabilities. This strategy covers six major areas. The first is selecting the pioneering posture, where a venture decides whether or not be among the industry's first companies to introduce new products (technologies) to the market. The second is determining the number of products to be introduced to the market. The third is choosing the extent of a venture's use of internal and external R&D sources. Internal sources usually refer to in-house R&D activities. External sources may include purchasing or licensing of technology from other companies, or joining strategic alliances to acquire that technology. The fourth is deciding the level of R&D spending. The fifth is selecting the combination (portfolio) of applied and basic research projects. Whereas basic R&D advances science, applied R&D leads to new products and technologies. The sixth, and final, dimension is the venture's use of patenting to protect any competitive advantages it might gain from its R&D activities.This article reports the results of a study that explored the differences in the technology strategies and performance of corporate and independent ventures. The biotechnology industry was chosen to test the study's hypotheses, using 112 ventures.Seven of the study's hypotheses focused on the potential variations in technology strategy between corporate and independent ventures. Independent ventures (IVs) were expected to surpass corporate ventures (CVs) in pioneering new products (technologies), using internal R&D, and emphasizing applied R&D. CVs were expected to surpass IVs in introducing new products, using external R&D sources, spending on R&D, and patenting. The study's remaining three hypotheses covered possible variations in new venture performance (NVP) and their sources.The results showed that IVs focused more on pioneering, pursued a more applied R&D portfolio, and emphasized internal R&D more than CVs. CVs utilized external technology sources, spent more heavily on R&D, stressed basic R&D, and used patenting more intensively than IVs. These results were consistent with the hypotheses. However, contrary to expectations, there were no significant differences between CVs and IVs in the frequency of new product introductions, probably because most ventures were at the invention, rather than the commercialization, stage.The results on the NVP of CVs and IVs were counter to expectations. IVs outperformed CVs, probably because of the high motivation of the IV owners who reaped the rewards of growth and profitability. Also, whereas CVs may have greater access to the resources of their sponsors, political conflicts and rigid corporate controls might have reduced their ability to achieve competitive advantages.The results also indicated that CVs and IVs appeared to gain competitive advantages from different technological choices. Pioneering, a focus on applied R&D, and extensive use of the internal R&D sources were also positively associated with the performance of IVs. Heavy R&D spending, the use of both internal and external R&D sources, frequent product introductions, and patenting were positively associated with the performance of CVs. Finding that technology strategies significantly impacted NVP should encourage executives to consider pursuing a formal technology strategy. Likewise, the finding that different dimensions of technology strategy influenced the performance of CVs and IVs in different ways has practical implications. CV managers can learn from their higher performing IV rivals. Also, because established companies frequently acquire IVs, information about their technology strategies can be valuable in assimilating the acquired ventures. Overall, the results show that technology strategy is an important factor in enhancing new venture performance.     

Founder/Chief Executive Officer Exit: A Social Capital Perspective of New Ventures

The founder/chief executive officer (CEO) exit is a significant event for all business organizations. However, a social capital perspective suggests that the exit of the founder/CEO may be more disruptive for new start-ups due to the critical role the founder/CEO plays in the new organization and the heightened potential chance for failure of a new venture. A social capital perspective suggests that the ability of the entrepreneurial firm to perform better is affiliated with the social capital within the organization. This study supports a social capital perspective of CEO exit and social capital's impact on performance. It helps establish a foundation of study of CEO exit and new ventures from this perspective.     

The impact of formal processes for market information acquisition and utilization on the performance of Chinese new ventures

The authors examine the performance impact of formal market information processes. Specifically, a theoretical model is developed that hypothesizes that formal processes for market information acquisition and utilization have direct and positive main effects on new venture success and is then tested using a sample of 222 new ventures located in China. Findings indicate that new venture success is positively correlated with the use of formal processes for market information acquisition and use. Moreover, the relative importance of formal processes to the acquisition and use of market information depends on whether the new venture serves an emerging or established market. In particular, the impact of formal processes for information acquisition is higher among new ventures that serve emerging markets. In contrast, the impact of formal processes for information use is higher among new ventures that serve established markets. We present managerial implications of our results. For example, a new venture with a strong market orientation can respond quickly to emerging marketplace needs, and can even seize the advantage from incumbents. If it is in an emerging market, however, the new venture management team should strive to excel at information acquisition; in an established market, it is important for the management team to excel at information utilization.     

Why and how do founding entrepreneurs bond with their ventures? Neural correlates of entrepreneurial and parental bonding

This paper investigates why and how founding entrepreneurs bond with their ventures. We develop and test theory about the nature of bonding in a functional magnetic resonance imaging (fMRI) study of 42 subjects (21 entrepreneurs and 21 parents). We find that entrepreneurs and parents show similar signs of affective bonding, that self-confidence plays a role in bonding style, and that the degree to which entrepreneurs include their ventures in the self and to which parents include their child in the self influences their ability to make critical assessments. Our findings suggest that bonding is similar for entrepreneurs and parents and that venture stimuli influence reward systems, self-regulatory functions, and mental factors that are associated with judgment.     

The Role of Know-How in Corporate Rejuvenation: The Case of Rover

This paper focuses on the strategic context of the K-engine innovation at Rover Group. The argument is that during the 1960s and 1970s, British Leyland's attempt to establish engineering and development capabilities was undermined by a lack of financial commitment by top management, and numerous occasions of corporate reorganisation. Later, the strategic alliance with Honda provided an opportunity for Rover's corporate rejuvenation, and was part of a clearer top management focus on how to bring new products to the market. The strategic alliance also gave Rover the chance to gain crucial organisational competencies and know-how from this joint venture. This is in contrast to previous European-Japanese joint ventures, which often saw the Japanese partner on the receiving end of know-how transfer.