Sarath Balachandran, Management, The Wharton School
Abstract: Research examining whether corporate venture capital investments create value, either for startups or established firms, has largely adopted a binary characterization of these relationships, i.e. ‘CVC’ vs ‘no CVC’. From the startup perspective this entails comparing on average the outcomes of startups that receive CVC investment vs ones that don’t, and from the established firm perspective, it entails a comparison of those that make these investments vs ones that don’t. Recent findings have however pointed towards a great deal of heterogeneity underlying this binary characterization. In this paper, we argue and demonstrate that examining these relationships at a dyadic level rather than as an aggregation across multiple relationships allows us to learn more about the mechanisms by which they create value. In particular, we examine how the identities and career histories of the individuals who manage these relationships on behalf of the established firm shape the exchanges in knowledge, complementary assets and capital that follow. We employ a novel design that takes advantage of simultaneous investments by different established firms in the same startup and enables us to separate the ‘treatment’ effects relating to how these relationships are managed from the ‘selection’ effects which determine who partners with whom.