Corporate Venture Capital: The Upside of Failure and Competition for Talent

Gilles Chemla and Jean-Etienne de Bettignies

No 4139, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We consider the motives for a firm to engage in corporate venturing. We argue that in case of failure of a new venture, corporate venture capitalists (CVC) have a strategic advantage relative to traditional venture capitalists (VC) in creating rents after rehiring or refinancing the entrepreneurs. Hence, corporate venturing induces the would-be entrepreneur to exert an effort that is higher than within the corporation, but lower than under traditional venture capital financing. Ceteris paribus, the entrepreneur ends up with fewer shares and less control under CVC financing than under traditional VC financing. Competition from venture capitalists increases corporate venturing activity, the salaries of potential entrepreneurs, and total economic output. Our results are consistent with the observed pro-cyclicality of corporate venture capital activity with venture capital activity.

Keywords: Corporate venture capitalist; Venture capitalist; Entrepreneur; Manager; Competition; Failure (search for similar items in EconPapers)
JEL-codes: G24 G32 M12 M13 (search for similar items in EconPapers)
Date: 2003-12
New Economics Papers: this item is included in nep-cfn and nep-ent
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Corporate Venture Capital: The Upside of Failure and Competition for Talent (2003)
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