The effect of corporate VC investments on productivity turns out to be "negligible", according to the report, Venture capital: Policy lessons from the Vico project - a European Union-funded research of 8,370 European high-tech entrepreneurial firms.
One of the most common arguments in favour of corporate venturing appears to be wrong. They do not help their portfolio companies increase their sales and productivity despite the promise held out from often having strategic resources to offer entrepreneurs trying to break into a sector.
The effect of corporate VC investments on productivity turns out to be "negligible", according to the report, Venture capital: Policy lessons from the Vico project – a European Union-funded research of 8,370 European high-tech entrepreneurial firms. Corporate venturing made up 11% of investments* in the 759 venture capital-backed companies in the study of 8,370 European high-tech entrepreneurial firms.
By contrast, independent venture capital (VC) firms are successful at providing "unequivocally positive impact, greater than that documented in previous studies, on the productivity and sales growth of European high-tech entrepreneurial ventures".
This effect was largely attributable to the treatment effect rather than to selection by VC investors of highly efficient firms with superior growth prospects. The productivity growth of VC-backed companies originates mostly from sales growth, while improved efficiency in the use of labour and/or capital is negligible.
The report said: "These results are in line with the view that independent VC investors, because of the need to make a rapid exit, strive to increase total factor productivity (TFP) and sales of portfolio companies… [and] especially applies to less reputable investors that need to ‘grandstand’ (document their investment ability to capital providers) so as to be able to raise new funds."
Corporate venturers, with often less need for a quick exit, typically invest at an earlier stage and are more international than independent peers, the report said. This was due to "having different objectives relating to their ‘technology window’ strategy".
*There were a total of 3,475 investments – events in which one VC invests in one company in a given point in time – in these 759 VC-backed companies. For example, a syndicate of three VC investors involved in two rounds of financing generates six investments.
