Working Paper: CEPR ID: DP16159
Authors: Mario Daniele Amore; Samuele Murtinu; Valerio Pelucco
Abstract: Many works at the crossroads of entrepreneurship and finance have studied corporate venture capital (CVC)’s decision-making and performance. We explore a neglected aspect in this literature: the presence of families as dominant owners of CVCs’ parent organizations. Our data reveal that families are a key engine of corporate venturing activities: about one third of CVC deals in the US from 2000 to 2017 originated from family firms. Moreover, we find marked differences in the strategies and outcomes of family and non-family CVCs. Family CVCs syndicate more, join larger syndicates, and invest in ventures closer to the parent in terms of geography and industry - especially when the venture is informationally opaque and when the parent’s CEO is a family member. Family CVCs add more value to their portfolio companies, which exhibit a higher likelihood of successful exit, better post-IPO market performance, and more valuable patents after the IPO. Family CVCs are also better able than non-family CVCs to generate shareholder value for their parent companies. Finally, family CVCs invest more during a financial crisis. Collectively, our findings are consistent with the view that family control entails a mix of risk mitigation and long-term preferences beneficial for venturing activities.
Keywords: corporate venture capital; family ownership; investment performance
JEL Codes: G24; G32; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Family ownership (J54) | CVC activities (A30) |
| Family ownership (J54) | likelihood of syndication (L14) |
| Family ownership (J54) | investment in geographically and industrially proximate ventures (R32) |
| Family CVCs (G50) | likelihood of successful exits (L26) |
| Family CVCs (G50) | investment during financial crises (G01) |
| Family control (J12) | risk aversion and long-term investment strategies (G11) |