How Do Corporate Venture Capitalists Create Value for ...

Further we include a dummy indicating whether the firms’ product is related to an internet technology and
also include the 6 month equal-weighted return on a portfolio of already public firms in the same Fama-
French industry as the entrepreneurial firm. The latter variable captures the hot market effect (i.e. internet-
bubble period or hot or cold IPO market year).
While CVC backing does not directly affect an entrepreneurial firm’s propensity to have a successful
exit, the CVCs’ presence improves the entrepreneurial firms’ chances for successful exit indirectly. We
find that the higher the total amount invested by all venture capitalists and the higher the reputation of
existing IVCs, the higher is a firm’s likelihood of having an IPO or an acquisition. Earlier, we showed
that CVCs tend to invest significantly larger amounts than IVCs. In addition, we can see that CVCs attract
high reputation IVCs to co-invest with them.
In Panel B of Table 4b we conduct a similar probit analysis where we evaluate the propensity of a
firm to have an IPO versus acquisition. We find that CVC backing positively affects the likelihood of a
firm going public both directly (through a number of CVCs) and indirectly (through investing larger
amounts). In Panel C we evaluate the time from first VC investment to exit (IPO or acquisition) for CVC-
backed and IVC backed firms. The results show that it takes longer for a CVC backed entrepreneurial
firm to go from the first venture investment to a successful exit.
Overall, our evidence suggests that CVC backed companies are more likely to go have successful
exit than IVC backed firms. Further, the probability of having an IPO rather than an acquisition is greater
for a CVC backed firm. The longer time from first venture capital investment to exit attributed to CVC
backed firms is consistent with our earlier findings that CVCs invest in younger firms, in less mature
industries, and in earlier rounds (which may take longer time to reach profitability).
6. Post-IPO Performance of CVC and IVC Backed Firms
In this section we investigate whether corporate venture capital backing generates higher product
market value for entrepreneurial firms by comparing the post-IPO operating performance of CVC and
IVC backed firms. Our objective here is to determine whether the pool of firms going public with CVC
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