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Venture capital investing by information technology companies: did it pay?

Abstract

While corporate venture capital programs offer prospects for direct financial returns and strategic benefits, there is little evidence regarding whether they deliver economically significant value to sponsoring firms. We take an initial step in addressing this question by evaluating direct returns of programs of U.S. information technology companies during 1990-2002. Direct gains (losses) were widely dispersed and bimodally distributed, based on IRR and net cash flow metrics. Timing of initiation within the venture capital cycle; program scale; and annual investment, write-down, and harvest behavior were associated with differences in returns. Likewise, we explore how program characteristics may relate to their attractiveness as platforms from which to pursue strategic benefits.

(Journal of Business Venturing, Volume 22, Issue 2, March 2007, Pages 262-282.)