Capturing and measuring the strategic value in corporate venture capital

Abstract

Corporations are increasingly utilizing corporate venture capital (CVC) as a significant component of their external innovation strategy. Over the past several years, these CVCs have grown to contribute a large percentage of all startup funding in the US. The growing role of CVCs in the innovation ecosystem presents pressing questions around the structures, objectives, and stability of this particular source of funding. After several decades of CVC history, nearly all CVCs have converged onto the dual objective of investing for both strategic and financial returns. It is the existential need to return strategic value back to the parent corporation that separates CVCs as distinct from institutional venture capital (VC) firms. While the survivability and growth of institutional VCs depend solely on financial return performance, the survivability and growth of CVCs depend on demonstrations of both a respectable financial return, as well as relevant and significant strategic returns. This research explores and examines the capture and measure of strategic value in CVC investments through a series of interviews with prominent CVC units representing a cross section of various industries. A framework for characterizing four taxonomies of strategic investment objectives is proposed and used to landscape a sample of CVCs in order to determine whether the capture of strategic value in CVCs is emergent from the system design of a CVC's structure, practices, and organizational linkages. A survey on how CVCs measure direct and indirect strategic value revealed that the vast majority of CVCs were unable to, or do not attempt to measure the performance of this primary investment objective. Both quantitative and qualitative treatments were given to the analysis of the research data on the structures, practices, and strategies related to value capture in strategic VC investments. This research found a wide range of approaches towards capturing strategic value in CVC investments. However, the measurement of such value remains elusive. Very few instances of actual measurement of strategic value were observed, which paints a picture of a significant funding source of US innovation largely unjustified by the lack of performance measurements on existential investment objectives.