Diversification in the venture capital industry: leveraging knowledge under uncertainty

This study contributes to the research on the effect of diversification on performance under conditions of uncertainty. More specifically, we examine diversification in the context of venture capital firms. Drawing on the knowledge and organizational learning literature, we hypothesize that firms benefit from either low levels of diversification because of efficiencies in processing knowledge or high levels of diversification because of access to broad information that facilitates solving complex problems and the ability to direct a portfolio company down different trajectories. Consistent with our hypotheses, we find a U‐shaped relationship. Firms benefit from either low or high levels of diversification; moderate levels yield the poorest results. When uncertainty is highest (i.e., early stage investing, no coinvestors), the effects are most pronounced. Copyright © 2011 John Wiley & Sons, Ltd.     

Learning to let go: Social influence,learning, and the abandonment of corporate venture capital practices

Research summary: This study examines the abandonment of organizational practices. We argue that firm choices in implementing practices affect how firms experience a practice and their subsequent likelihood of abandonment. We focus on utilization of the practice and staffing (i.e. career backgrounds of managers), as two important implementation choices that firms make. The findings demonstrate that practice utilization and staffing choices not only affect abandonment likelihood directly but also condition firms' susceptibility to pressures to abandon when social referents do. Our study contributes to diffusion research by examining practice abandonment—a relatively unexplored area in diffusion research—and by incorporating specific aspects of firms' post‐adoption choices into diffusion theory. Managerial summary: When do firms shut down practices? Prior research has shown that firms learn from the actions of other firms, both adopting and abandoning practices when their peers do. But unlike adoption decisions, abandonment decisions need to account for firms' own experiences with the practice. We study the abandonment of corporate venture capital (CVC) practices in the U.S. IT industry, which has experienced waves of adoption and abandonment. We find that firms that make more CVC investments are less likely to abandon the practice, and are less likely to learn vicariously from other firms' abandonment decisions, such that they are less likely to exit CVC when other firms do. Staffing choices also matter: hiring former venture capitalists makes firms less likely to abandon CVC practices, while hiring internally makes abandonment more likely. Plus, staffing choices affect how firms learn from the environment, as CVC managers pay attention to and learn more from the actions of firms that match their work backgrounds; i.e., firms that staff CVC units with former venture capitalists are more likely to follow exit decisions of VC firms, while those that staff with internal hires are more likely to follow their industry peers. Our results suggest that firms wanting to retain CVC practices should think carefully about the implementation choices they make, as they may be inadvertently sowing seeds of abandonment. Copyright © 2015 John Wiley & Sons, Ltd.     

The relationship between portfolio diversification and firm value: The evidence from corporate venture capital activity

Corporate venture capital (CVC) activity exposes firms to new technologies and markets. An important but as yet unexplored question is the relationship of the industry diversification profile of the portfolio of venture companies to corporate value creation. Insights from options and diversification perspectives support our hypothesis that diversification of a corporate investor's portfolio of venture companies is related to corporate wealth creation in a U‐shaped relationship. We also propose that a corporate investor's financial constraints moderate the relationship between the diversification profile of its CVC portfolio and value creation. When we tested our hypotheses using a sample of CVC investments across multiple industries, we found support for them, and these findings may inform the CVC activities of corporate investors. Copyright © 2013 John Wiley & Sons, Ltd.     

Entrepreneurial finance meets organizational reality: comparing investment practices and performance of corporate and independent venture capitalists

This paper investigates the effect of compensation of corporate personnel on their investment in new technologies. We focus on a specific corporate activity, namely corporate venture capital (CVC), describing minority equity investment by established‐firms in entrepreneurial ventures. The setting offers an opportunity to compare corporate investors to investment experts, the independent venture capitalists (IVCs). On average, we observe a performance gap between corporate investors and their independent counterparts. Interestingly, the performance gap is sensitive to CVCs' compensation scheme: it is the largest when CVC personnel are awarded performance pay. Not only do we study the association between incentives and performance but we also document a direct relationship between incentives and the actions managers undertake. For example, we observe disparity between the number of participants in venture capital syndicates that involve a corporate investor, and those that consist solely of IVCs. The disparity shrinks substantially, however, for a subset of CVCs that compensate their personnel using performance pay. We find a parallel pattern when analyzing the relationship between compensation and another investment practice, staging of investment. To conclude, the paper investigates the three elements of the principal‐agent framework, thus providing direct evidence that compensation schemes (incentives) shape investment practices (managerial action), and ultimately investors' outcome (performance). Copyright © 2010 John Wiley & Sons, Ltd.     

Entrepreneurial beacons: The Yale endowment,run‐ups,and the growth of venture capital

Research summary : This article investigates the social context of entrepreneurship in organizational sectors. Prior research suggests that firm foundings are driven by collective patterns of activity—such as patterns of prior foundings in a given sector. Building on research on social salience and signals, we consider the influence of singular sector‐level triggers, which we call entrepreneurial beacons. We argue that the actions or outcomes of single, salient organizations attract and motivate entrepreneurs, thus increasing the rate of foundings. We test this logic by examining the impact of the Y ale U niversity endowment's investment choices and of venture‐capital‐backed IPO run‐ups on venture‐capital foundings between 1984 and 2011. We find support for the existence and influence of beacons and outline boundary conditions for their effects . Managerial summary : What leads entrepreneurs to found new companies in nascent sectors? In contrast to prior research, which emphasizes patterns of activity, we argue that entrepreneurial activity can sometimes be driven by the actions of a singular trigger—what we call an entrepreneurial beacon. We examine the influence of two such beacons, Y ale U niversity's endowment investments and exceptional venture‐capital‐backed IPO run‐ups, on the founding of new venture‐capital firms over a 28‐year period. We find that Y ale's increased allocations to the venture‐capital asset‐class has a significant influence on the founding of new venture‐capital firms, while exceptional venture‐capital‐backed IPO run‐ups only influence venture‐capital foundings under certain conditions. Overall, we offer an explanation for heretofore anecdotal accounts of certain organizations or events that appear to have an outsized influence on entrepreneurial activity . Copyright © 2016 John Wiley & Sons, Ltd.     

The effect of governance modes and relatedness of external business development activities on innovative performance

This study examines how different governance modes for external business development activities and venture relatedness affect a firm's innovative performance. Building on research suggesting that interorganizational relationships enhance the innovative performance of firms, we propose that governance modes and venture relatedness interact in their effect on innovative performance. Analyzing a panel of the largest firms in four information and communication technology sectors, we find that degree of relatedness for corporate venture capital investments, alliances, joint ventures, and acquisitions influences their impact on innovative performance. Copyright © 2008 John Wiley & Sons, Ltd.     

Form or substance: the role of business plans in venture capital decision making

We explore a well‐known instance of fast decision making under high uncertainty, venture capital (VC) opportunity screening. We analyze a sample of 722 funding requests submitted to an American VC firm and evaluate the influence of the form of the submission and content of business planning documents on VC funding decisions. We improve on prior literature by a) using a large sample of known representativeness, b) relating request characteristics to actual VC decisions, and c) developing an inferential logic that takes account of the multiple sources of information to which VCs have access. We find that the presence of planning documents and some information contained therein are weakly associated with VC funding decisions. Based on our inferential strategy, we find that this information is learned independently of its inclusion in the business planning documents. Copyright © 2009 John Wiley & Sons, Ltd.     

Calls on high-technology: Japanese exploration of venture capital investments in the United States

The strategic logic of Japanese high-technology venture capital investment reveals the existence of an implicit call option, or ‘shadow option’, on new technology. This option is exercised by further investment in product development, manufacturing and distribution. The process is described with reference to a comparative study of Japanese and U.S. venture capital firms. Similarities and differences between the two groups are reported, and a conceptual model of Japanese option strategy is formulated. The implications for our understanding of Japanese strategy and for strategic management theory are discussed.     

医药产业集群中的风险投资优势

目的探讨我国医药产业集群吸收风险投资的优势。方法运用规范和实证研究方法。结果论述医药行业中风险投资现状、医药产业集群在吸引风险投资方面的优势,并对医药产业集群吸引风险投资进行了建议和展望,结论应该充分发挥医药产业集群化发展在吸引风险投资方面的优势,获得更多的风险资金支持。     

Which ties matter when? the contingent effects of interorganizational partnerships on IPO success

This paper investigates the contingent value of interorganizational relationships at the time of a young firm's initial public offering (IPO). We compare the signaling value to young firms of having ties with two types of interorganizational partnerships: endorsement relationships such as those with venture capital firms and investment banks, and strategic alliance partnerships. We propose that, under different equity market conditions, potential investors in an issuing firm attend to different types of uncertainty; attention to these different types of uncertainty affects investors' perceptions of the relative value of a young firm's different kinds of endorsements and partnerships and, hence, IPO success. Results from a sample of young biotechnology firms show that ties to prominent venture capital firms are particularly beneficial to IPO success during cold markets, while ties to prominent investment banks are particularly beneficial to IPO success during hot markets; a firm's strategic alliances with major pharmaceutical/health care firms did not have such contingent effects. Implications for understanding the contingent value of interorganizational ties are discussed. Copyright © 2003 John Wiley & Sons, Ltd.     

Examining a key corporate role: The influence of capital allocation competency on business unit performance

Research on the role of the corporate office in firm performance has focused on establishing how much performance variance can be attributed to a “corporate effect,” with little attention devoted to understanding how this influence occurs. In this study, we model capital allocation competency as a dynamic managerial capability and find that lower levels of allocation competency in the form of excess investment to business units with relatively poorer future prospects reduce business unit performance. We also find that market conditions affect performance implications of capital allocation—allocation competency is more salient in more competitive markets. These results enhance our understanding of how the corporate office influences business unit performance through its role in allocating capital across business units. Copyright © 2014 John Wiley & Sons, Ltd.     

以知识创新为中介的社会资本对技术创新影响的模型分析

社会资本对技术创新的影响是学术界和实践界关注的热点问题之一,然而其路径和机理仍不明确。为此,试图通过一个模型分析了知识创新为中介的社会资本对技术创新的影响。首先,借鉴场论,提出了以知识创新为中介的社会资本影响技术创新的概念模型;其次,提出了修正的创新价值链模型和扩展的知识创新模型,并分析社会资本对知识创新和技术创新的直接影响,以及社会资本通过知识创新对技术创新的间接影响;最后,探究了社会资本通过知识创新影响技术创新的路径和机理,以期为企业技术创新更好地展开提供一些借鉴。     

Knowledge transfer and international joint ventures: the case of NUMMI and General Motors

Using a case study of NUMMI, a joint venture between General Motors (GM) and Toyota, this research note examines alliances and knowledge transfer with a focus on the organizational processes used to transfer knowledge. The results suggest two possible explanations for the knowledge transfer outcome. The primary explanation is that the systematic implementation of knowledge transfer mechanisms can overcome the stickiness and causal ambiguity of new knowledge. A second explanation is that creating successful knowledge transfer should be viewed from a change management perspective in which trial and error learning experiences and experimentation support the transfer outcome. Copyright © 2007 John Wiley & Sons, Ltd.     

The dialectics of competency acquisition: pollution prevention in electric generation

Strategy researchers now recognize that distinctive competencies are critically important for sustained competitive advantage. The processes by which such competencies are acquired, however, has only started to be examined. Connections between macro-industrial system level properties and micro-developments in proprietary technology at the firm level need to be made. This paper argues that system-wide properties, such as long-standing elementary and opposing logics in societal forces like governments and markets, and micro-developments, such as the firm's capacity to search for talent, technology, and ideas and to harmonize what it learns internally, can contribute in significant ways to the creation and acquisition of new competencies. Based on the case of pollution prevention in electric generation, it shows how the system-wide properties channel and direct the paths that the acquisition of new competencies take and how they interact with micro-developments at the firm level. © 1998 John Wiley & Sons, Ltd.     

Positive and negative synergies between the CEO's and the corporate board's human and social capital: A study of biotechnology firms

This paper contributes to the corporate governance literature by developing and testing theory regarding positive and negative synergies between the CEO's and the board's human and social capital. Using a sample of 360 biotechnology firms that went public between 1995 and 2010, we demonstrate that accumulated public company board experiences of the CEO and the board have positive synergistic effects on IPO performance whereas the current board appointments have negative effects. While scientific educational backgrounds have positive synergies, industry‐specific experiences produce either positive or counterproductive effects depending on the age and profitability of the firm. Thus, our paper contributes to the corporate governance and human and social capital literatures by describing the costs and benefits of specific types and combinations of CEO and board capital. Copyright © 2013 John Wiley & Sons, Ltd.     

知识螺旋影响研发团队创新创意产生实证研究——内部社会资本的调节效应

为了研究研发团队内部知识的交互对于创意产生的机理,通过构建概念模型,研究知识螺旋对研发团队创新创意产生的影响,并分析内部社会资本的调节效应。采用结构方程模型和分层线性分析,基于274份样本的实证研究表明:一方面,知识螺旋显著积极影响研发团队创新创意产生,并且知识表出化、知识结合化、知识内在化及知识社会化分别积极影响创新创意产生;另一方面,内部社会资本不同维度在知识螺旋与创新创意产生关系中的调节效应各不相同,结构社会资本的调节效应并不显著,而认知社会资本和关系社会资本显著正向调节知识螺旋对创新创意产生的影响。根据研究结果,提出促进研发团队创意产生的建议。     

Unraveling the mechanisms of reputation and alliance formation: A study of venture capital syndication in China

Extant research shows that resources are significant to a firm's choice of alliance formation. We focus on an important form of intangible resource—firm reputation—and examine how it affects a firm's propensity to form alliances. We propose an inverted U‐shaped relationship between a firm's reputation and its likelihood of alliance formation, resulting from the opposing mechanisms of opportunity and need. We also examine how this relationship may vary across two contingencies: (1) foreign and domestic firms; and (2) different levels of institutional development. Empirical analyses of China's venture capital (VC) industry provide support for our hypotheses. Copyright © 2013 John Wiley & Sons, Ltd.