Corporate Venture Capitalists and Independent Venture Capitalists: What do they know, Who do They Know and Should Entrepreneurs Care?

Abstract

There is an established body of research that has examined the value-added provided by venture capitalists for their portfolio companies. More recent work has started to look at the comparable activities of corporate venture capitalists. However, to date, the value-added provided by these two types of investors for their portfolio companies has not been compared systematically. This study undertakes such an evaluation by comparing the social capital-based and knowledge-based forms of value-added provided by independent and corporate venture capitalists to their portfolio firms. Primary data from US technology-based new firms that had received both corporate venture capital and independent venture capital funding is analysed. This study demonstrates that the value-adding contributions of corporate venture capital and independent venture capital investors are different both in their origins and in their consequences. Independent VCs add value in helping raise additional finance, recruiting key employees and professionalizing the organization--early-stage establishment activities we term 'enterprise nurturing'. Corporate venture capitalists are superior in helping the young firm build commercial credibility and capacity, and in providing technological support--growth-focused activities termed 'commerce building'. Importantly, the two forms of value-added appear complementary. It is concluded that it is in the interests of both portfolio companies and their investors that both sources of advice and support are available.