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The role of corporate venture capitalists in supporting the growth of their backed start-ups

The role of corporate venture capitalists in supporting the growth of their backed start-ups Building on the venture capital (VC) literature, this paper aims to study the impact of the value added by corporate venture capitalists (CVCs) on their funded companies by comparing its IPO valuation with its independent venture capitalists (IVCs) peers.Design/methodology/approachThis study uses a sample of 3,719 VC-backed ventures, between the years 1998 and 2020. The empirical analysis focuses on the propensity score matching approach, pairing ventures based on their probability of being funded by CVCs, and consequently, interpret the results derived from the valuation multiple ratios between the “nearest neighbors.”FindingsThis study finds that companies funded by CVCs can achieve higher valuations at their IPO compared to IVC-backed companies. Moreover, CVC-backed companies outperformance is mainly driven by startups which hold a technological fit with their CVC investor, with higher technological overlaps being translated into more significant valuations.Research limitations/implicationsThis study presents systematic evidence to the subject concerning ventures’ type of investors and its effect on the startups’ IPO valuations.Practical implicationsThis paper contributes to the enrichment of the industry’s literacy while also easing entrepreneurs’ decisions when choosing a funding partner. CVCs offer a variety of services and support that fits the specific needs of their funded companies.Originality/valueTo the best of the authors’ knowledge, this study is among the first to examine the role of CVCs as a tool to help venture growth. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png European Business Review Emerald Publishing

The role of corporate venture capitalists in supporting the growth of their backed start-ups

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References (57)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
0955-534X
eISSN
0955-534X
DOI
10.1108/ebr-09-2022-0183
Publisher site
See Article on Publisher Site

Abstract

Building on the venture capital (VC) literature, this paper aims to study the impact of the value added by corporate venture capitalists (CVCs) on their funded companies by comparing its IPO valuation with its independent venture capitalists (IVCs) peers.Design/methodology/approachThis study uses a sample of 3,719 VC-backed ventures, between the years 1998 and 2020. The empirical analysis focuses on the propensity score matching approach, pairing ventures based on their probability of being funded by CVCs, and consequently, interpret the results derived from the valuation multiple ratios between the “nearest neighbors.”FindingsThis study finds that companies funded by CVCs can achieve higher valuations at their IPO compared to IVC-backed companies. Moreover, CVC-backed companies outperformance is mainly driven by startups which hold a technological fit with their CVC investor, with higher technological overlaps being translated into more significant valuations.Research limitations/implicationsThis study presents systematic evidence to the subject concerning ventures’ type of investors and its effect on the startups’ IPO valuations.Practical implicationsThis paper contributes to the enrichment of the industry’s literacy while also easing entrepreneurs’ decisions when choosing a funding partner. CVCs offer a variety of services and support that fits the specific needs of their funded companies.Originality/valueTo the best of the authors’ knowledge, this study is among the first to examine the role of CVCs as a tool to help venture growth.

Journal

European Business Review – Emerald Publishing

Published: Aug 21, 2023

Keywords: Corporate venture capital; Independent venture capital; IPO valuation; Technological fit

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