brinette s khemiri s 2019 identifying determinants corporate venture capital strategy evidence

“Identifying the determinants of corporate venture capital strategy: Evidence from French firms”, Forthcoming in International Journal of Entrepreneurship and Small Business,

Brinette, S., Khemiri, S. (2019)


Corporate venture capital (CVC) is the venture capital of non-financial corporations and is different from venture capital which is a type of funding that is provided by funds or firms specializing in building high-risk financial portfolios. CVC is a form of cooperation between large firms and innovative start-ups. CVC enables corporations to increase their innovation, through instant access to new technologies provided by start-ups, without the high cost associated to research and development. In return, start-ups benefit from the managerial assistance of large companies.

Corporate venture capital has become a major concern of both practitioners and academics.

The determinants of the decision to adopt a CVC strategy have been studied only in the American context. In the French context, the existing literature is scarce, while French CVC commitments have been sharply increased over the last decade. In 2016, investment in CVCs reached 2.7 billion euros in comparison to 1.5 billion euros in 2015. This increase was boosted by a tax incentive scheme adopted by the French government in September 2016. This corporate venture scheme aims to enable companies to contribute more to the development of innovative small businesses. The aim of this research work is to explore the variables that might explain the decision of established large firms to launch or join a corporate venture fund.

Our study is performed on a database of all French firms that adopted a corporate venture capital (CVC) strategy between 1995 and 2015. This specifically collected dataset includes 58 large groups listed on the SBF 120 index, with 29 groups that launched or joined CVC funds and the other 29 groups are our control sample.

In order to empirically assess to what extent the different characteristics of a corporation may explain its decision to adopt a CVC strategy, multivariate logit, and Poisson multiple linear regressions are run.

The results provide evidence that a firm’s CVC strategy is an increasing function of the strength of its specific resources, its performance, the availability of resources, and its low level of indebtedness.

The results highlight that firms with strong specific resources are attractive partners and gain more advantages to make CVC strategy. This strategy allows large groups and start-ups to share their resources and achieve a competitive advantage.

Accounting-based financial performance has a significantly positive effect on the decision to undertake CVC investments. However, the results are not statistically significant when market-based financial performance measures are used.

Our results show also that there is a positive and significant influence of the existence of free cash flows within the company on the decision to adopt a CVC strategy. We explain this result through literature focusing on agency conflicts. This literature provides evidence that agency conflicts could be due to the availability of liquidity (Jensen, 1986). Certainly, more the firm holds free cash flows, more the managers have incentives to act in the detriment of shareholders’ interests. As such, we may argue that adopting a CVC strategy is a means to limit this type of agency conflicts.

The level of indebtedness has a significantly negative effect on CVC strategy. Less indebted corporates are more likely to make CVC. Essentially, a less indebted company reflects more financial flexibility, which allows it to allocate funds to innovation.

This study offers several contributions. Our findings provide guidelines for managers intending to adopt a CVC strategy. They can observe whether their companies have the same characteristics as their CVC counterparts. It is also possible for managers to learn from successful large groups that adopted CVC in the software (Dassault Systèmes), chemicals (Solvay, Saint Gobain), energy (Alstom, Suez Environnement, Total, and Veolia Environment), and telecommunications (Bouygues Telecom, Orange, SFR, and Nokia) industries.