How Do Corporate Venture Capitalists Create Value for ...

Our findings can be summarized as follows. First, compared to IVCs, CVCs invest in smaller,
younger, more R&D intensive firms, and in earlier rounds; CVC portfolio firms are typically in industries
related to their corporate parents. Second, CVCs invest significantly larger amounts while getting smaller
equity fractions in return compared to IVCs. Third, even though CVC backed firms have a higher
probability of a successful exit (IPO or acquisition), they exhibit significantly lower post-IPO operating
performance compared to IVC backed firms, and are more likely to be de-listed in the years immediately
after IPO. However, CVC backed firms are characterized by greater growth rates in the post-IPO period
than IVC-backed firms. Fourth, CVC-backed firms enjoy greater analyst coverage, higher reputation IPO
underwriters, and larger post-IPO institutional investor holdings: even the reputation of the IVCs co-
investing in CVC backed firms is no less than that of IVCs investing in firms backed by IVCs alone.
Finally, CVC-backed firms have higher IPO market valuations and long-term post-IPO stock returns
compared to IVC backed firms.
Overall, our results indicate that CVCs uniquely create value in two different ways: First, by
investing in earlier stage firms involving pioneering technologies which may not otherwise be able to
obtain private equity funding. Second, by giving CVC backed firms more efficient access to the equity
market by credibly communicating the true value of firms backed by them to three different
constituencies: first, to IVCs, prompting them to co-invest in these firms pre-IPO; second, to various
financial market players such as underwriters, institutional investors, and analysts, allowing them to
access the equity market at an earlier stage in their life-cycle compared to firms backed by IVCs alone;
and third, directly to IPO market investors, allowing CVC-backed firms to obtain higher IPO market
valuations compared to the valuation of firms backed by IVCs alone.
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