Guanghua Thought Leadership
Corporate Venture Capital Research: Literature Review and Future Directions


· Three key players in corporate venture capital (CVC) activities: parent corporate, CVC unit, and entrepreneurial venture.

· Environmental factors provide external opportunities for parent corporate to undertake CVC, while organizational factors influence the likelihood of parent corporate profiting from it and the urgency of adopting corporate venturing.

· In investing in entrepreneurial venture, parent corporate is able to acquire new knowledge, develop new resources and explore new opportunities, thereby enhancing the efficiency of internal innovation activities (such as technological innovation and capability development) and external business expansion activities (such as merger and acquisition and strategic alliance), and ultimately contributing to the overall value of the parent corporate.

· The management of the CVC unit, which is the connector between the parent corporate and the entrepreneurial venture, is an important mechanism to facilitate value creation and value sharing between the parent corporate and the entrepreneurial venture.

· Entrepreneurial venture usually considers whether to choose a corporate venture in two ways: Firstly, whether there are valuable complementary assets in the parent corporate; secondly, the existence of effective mechanisms to protect its interests.

· The impact of CVC on entrepreneurial venture depends on the net impact of the "empowering effect" and the "governance effect".


I  Introduction

In recent years, large companies are becoming more and more involved in venture capital activities. This practice is defined by academia as corporate venture capital (CVC). CVC not only plays a key role in building the innovation ecosystem for startups, but also adds new impetus to the transformation and upgrading of large companies, helping to transform the dynamics of China's economic growth. The rapid development of the practice has stimulated scholars from various disciplines to theorize about this phenomenon: what kind of large companies are more suitable for CVC? Under what conditions can CVC be more effective in empowering entrepreneurial ventures? This article analyzes 98 CVC literature published in leading domestic and international journals between 1980 and 2019, sorts out the core subjects in CVC and their relationships, proposes an integrated conceptual framework, composes the conceptual elements and core research questions of CVC, then reviews five major aspects of CVC, and finally proposes research in the field of CVC in the context of Chinese characteristics.


II  Conceptual Framework of Corporate Venture Capital

CVC is defined as the minority equity investment made by a large established corporate in an independently operating venture. We first put forward a conceptual framework of CVC, based on the analysis of three key players in CVC activities (parent corporate, CVC unit, and entrepreneurial venture) and their relationships. Specifically, the parent corporate is the initiator of the CVC. Driven by specific environmental and organizational factors, the parent corporate makes the decision to set up a CVC unit and export capital, resources and management to obtain strategic effects by investing in the entrepreneurial venture. Entrepreneurial venture treats CVC as an important source of financing, trying to leverage the parent corporate's complementary resources to enhance innovation and growth efficiency, while also bringing new knowledge, resources and opportunities to the parent corporate. The CVC unit plays the role of a connector between the parent corporate and the entrepreneurial venture, combining the parent corporate's industrial knowledge and resource to screen and nurture the entrepreneurial venture, while helping the parent corporate to obtain strategic returns. In carrying out CVC, the three entities work together to create value and share value.

This framework further helps us to divide CVC research into five main themes: (1) the drivers of corporate's CVC investments, (2) CVC's strategic effects on corporate, (3) CVC unit's organization management, (4) the drivers of entrepreneurial venture's choice of CVC, and (5) CVC's strategic effects on entrepreneurial venture.


III  Research Themes and Theoretical Accomplishments of Corporate Venture Capital

The five research themes of CVC can be categorized under the investor perspective and the investee perspective. In the investor perspective, the parent corporate's objectives drive the decision making of the CVC and the organizational management of the corporate's CVC unit. In the investee perspective, the demands of the entrepreneurial venture influence its financing choices and development paths.

1) Investor Perspective

The main purpose of the parent corporate's CVC is to obtain strategic benefits and maximize the overall value of the company. The research regarding CVC from the investor's perspective includes: (1) the drivers of corporate's CVC investments, (2) CVC's strategic effects on corporate, (3) CVC unit's organization management.

Topic 1The Drivers of Corporate's CVC Investments

Environmental and organizational factors are two major forces that drive parent corporate to undertake corporate venturing. By undertaking corporate venturing, parent corporate can realize strategic benefits in two aspects: first, corporate can acquire new knowledge and opportunities, thereby increasing the likelihood of profiting from changes in the environment; Second, corporate venturing can also facilitate the development of new resources for the parent corporate and help it overcome discontinuities in its own development. The motivation of parent corporate to proactively develop and capture these benefits varies across industries and organizations.


Environmental Factors

· Technology Environment

The emergence of new technologies brings new opportunities for growth, but rapid technological change also poses a potential threat to large companies. In this scenario, parent corporate is often reactive to corporate venturing, investing in new resources that may be valuable in the future and reorganizing its organizational resources when the time is right. Hence, under certain environmental and organizational conditions, corporate has more incentives to conduct CVC investments, and realize these benefits.

· Market Environment

Because entrepreneurial venture is usually better at capturing market niche opportunities than large company, large company has an incentive to invest in entrepreneurial venture to exploit opportunities in new market niche. When the environment is more dynamic, firms are more motivated to use corporate venturing to exploit new opportunities.

· Social Environment

The social environment influences managers' perceptions of the potential benefits of corporate venturing and the urgency of adopting it. The decision to fund an entrepreneurial venture not only stems from a consideration of its own current situation but also significantly influenced by similar firms.


Organizational Factors

· Internal Resource

For large company with abundant internal technical, marketing and financial resources, there are greater capabilities to identify and develop external entrepreneurial opportunities and stronger incentives to undertake CVC.

· Social Capital

Social networks are not only important channels for parent corporate to acquire new external resources and knowledge, but also can enhance the social recognition of parent corporate among others, thus reducing the search and transaction costs of conducting corporate ventures.

· Corporate Performance

Performance feedback provides the most direct basis for decision making by managers with limited rationality. Experience based on Chinese listed companies suggests that a decline in overall corporate performance enhances their intensity to undertake CVC activities, while the incentive to undertake CVC decreases when the surplus between overall performance and social aspiration widens.