Where to invest? Effects of technological capabilities on corporate venture capital investments

Abstract

AbstractResearch SummaryWe investigate why a corporate investor makes more corporate venture capital (CVC) investments in certain areas than in others. Focusing on firms' different technological capabilities across distinct technology domains, we argue that a corporate investor's technological capabilities in a given domain affect its likelihood of investing in (1) ventures within the domain in an inverted U‐shaped manner and (2) ventures operating in other technologically complementary domains in a positive manner. We further claim that these two suggested relationships between technological capabilities and the likelihood of CVC investments are shaped by the technology growth rate of the focal domain. We test these arguments in the US medical sector, where incumbent firms are active in CVC investments as a means to acquire external knowledge.Managerial SummaryWe argue that firms exhibit different patterns in their choice of CVC investment areas based on their technological capabilities within a given technology domain. Our findings in the US medical sector indicate that firms are most likely to invest in ventures within domains where their technological capabilities are moderate—neither too weak nor too strong. This suggests that CVC investments serve gap‐filling purposes for technology intermediates. Moreover, corporate investors tend to invest in ventures within domains that are technologically complementary to their areas of strength. However, when a given domain experiences rapid growth, technology leaders in that domain shift their CVC investment focus from complementary areas to that domain to maintain their leading position.