The impact of strategic investment on success of capital-intensive ventures
Massachusetts Institute of Technology. Engineering Systems Division.
Charles H. Fine, .
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Established companies in technology-enabled industries such as software, telecommunications, pharmaceuticals, and semiconductors, have used corporate venture capital as a lever to access and screen technological advances, and to drive innovation outside the traditional firm boundaries. Recent years have witnessed emergence of a new wave of corporate venture capital funds that increasingly interact and compete with traditional venture capital firms in the entrepreneurial ecosystem. The incremental benefits of financing a startup through corporate venture capital have been a subject of study by researchers across Economics, Finance, Strategy, and Innovation fields. First, this thesis examines entrepreneurs' rationale for raising capital from corporate investors. Through the analysis of an online survey conducted with startups based in the US and founded between 2010-15, we identify that startups that operate in capital-intensive industries, such as life sciences and manufacturing, raise capital from corporate investors in order to establish strategic partnership with corporates, significantly more than do startups in capital-light industries such as enterprise and consumer software. Second, through an empirical analysis of a panel of 8,190 startups founded in the US between 2000-10, this thesis shows that corporate venture capital is more beneficial to startups that operate in capital-intensive industries. Using a bi-variate probit model, this thesis shows that startups backed by corporate venture capital are more likely to be acquired or go public, and that the likelihood of an exit event increases as capital-intensity of the industry magnifies, as measured by the level of fixed assets on companies' balance sheets. In addition, we provide empirical evidence that participation of corporate venture capital in a financing round, helps a capital-intensive startup to raise further funding from reputable traditional venture capital firms. Third, this thesis presents empirical evidence that establishing strategic collaboration between capital-intensive startups and corporate parents of venture capital firms, in forms of joint research, product development, or commercialization, is a main source of value for startups. Using data gathered on 130 corporate news announcements on strategic collaborations, this thesis shows that capital-intensive startups backed by corporate venture capital, are significantly more likely to succeed when they establish strategic collaboration with corporate parents. The final contribution of this thesis is a formal assessment of traditional venture capital firms' investment behavior in presence of corporate investors. We present a game-theoretic model and identify the circumstances under which traditional venture capital firms benefit financially from corporate investors participation in financing a capital-intensive startup. By leveraging data gathered on 8,190 startups, we apply the game-theoretic model and Monte-Carlo method to simulate financial returns for a traditional venture capital firm investing a capital-intensive startup in the pharmaceutical industry.
Thesis: Ph. D. in Engineering Systems, Massachusetts Institute of Technology, School of Engineering, Institute for Data, Systems, and Society, 2017.Cataloged from PDF version of thesis.Includes bibliographical references (pages 408-417).
DepartmentMassachusetts Institute of Technology. Institute for Data, Systems, and Society.; Massachusetts Institute of Technology. Engineering Systems Division.; Massachusetts Institute of Technology. Engineering Systems Division; Massachusetts Institute of Technology. Institute for Data, Systems, and Society
Massachusetts Institute of Technology
Institute for Data, Systems, and Society., Engineering Systems Division.