The Impact of Corporate Venture Capital: Potentials of Competitive Advantages for the Investing Company

310 Pages·2003·16.26 MB·English

by  Timo B. Poser (auth.)

limo B. Poser
The Impact of Corporate Venture Capital
GABLER EDITION WISSENSCHAFT
Timo B. Poser
The Impact of
Corporate Venture Capital
Potentials of Competitive Advantages
for the Investing Company
Deutscher
Universit~its-Verlag
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Dissertation Wissenschaftliche Hochschule fUr UnternehmensfUhrung (WHU)
Vallendar, 2002
1. Auflage Marz 2003
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ISBN-13:978-3-8244-7776-0 e-ISBN-13:978-3-322-81468-5
001: 10.1007/978-3-322-81468-5
To Parissa and Fabienne
VII
Preface
This research project was driven by curiosity about the actual impact of Corporate Venture
Capital activities on the investing company. At the end of 1998 when I developed the idea of
analyzing CVC further, corporate venturing activities began to increase again after they had
gone through two earlier boom and bust cycles. At that time, I did not envision how large the
dimensions of CVC investments would become and how sharp the decrease afterwards would
be. This latest cycle confirmed my desire to determine the impact of CVC and contribute to
the understanding of CVC ,in theory and management practice.
This research project was accepted as a dissertation by the "PromotionsauBschuss der
Wissenschaftlichen Hochschule fUr Unternehmensfiihrung (WHU), -Otto-Beisheim
Hochschule-", in Vallendar entitled "Impact of Corporate Venture Capital on Sustainable
Competitive Advantage of the Investing Firm - A Resource Based Approach" in June 2002.
I want to thank several people who contributed to this research project. I am grateful to Prof.
Dr. Klaus Brockhoff and Prof. Dr. Markus Rudolf for their guidance and support. I want to
thank several interview partners from industry for their time and insights. Thanks also to
NVCA, EVCA and Asset Alternatives Inc. for the permission to cite Corporate Venture
Capital figures.
I also want to express my gratitude to other people who supported me: Dr. Andreas Eggert
for his perspectives from theory; Oliver Lohfert and Dr. Alexander Moscho for their
feedback; Ginni Light for proofreading; Dr. Jiirgen Meffert and Dr. Lother Stein for the
impetus and opportunity to explore corporate ventures; Claudia Schiirger, Frank Galenza and
Wolfgang Limbeck for many books and articles. Last but not least, my wife for the right mix
of patience and pressure that helped me to finish this work.
Timo B. Poser
IX
Table of contents
List of illustrations XIII
List of tables XVII
Abbreviations and terms XIX
1. Introduction 1
1.1. Relevance of topic
1.2. Open issues and research objective 5
1.3. Structure and Approach 7
2. Theoretical foundation 9
2.1. Sustainable competitive advantage 9
2.1.1. DefInition of sustainable competitive advantage 9
2.1.2. Market-based view 11
2.1.3. Resource-based view 13
2.1.3.1. Resource types 15
2.1.3.2. Attributes of sustainable competitive advantage 18
2.1.3.3. Integrated view on attributes of sustainable competitive
advantage 27
2.1.4. Resource-based vs. market-based view 32
2.2. Venture capital 34
2.2.1. DefInition of venture capital 35
2.2.2. Situation in the venture capital market 42
2.2.3. Venture capital investment process 46
2.2.3.1. Raising capital 47
2.2.3.2. Generation of deal flow 58
2.2.3.3. Assessment of investment opportunities 61
2.2.3.4. Investment in start-ups 66
2.2.3.5. Interaction with start-ups 71
2.2.3.6. Exit investments 73
2.3. Corporate Venture Capital: defInition and objectives 81
2.3.1. DefInition of corporate venture capital 81
2.3.2. Objectives of Corporate Venture Capital 87
2.3.2.1. Build technology and market knowledge 94
2.3.2.2. Change attitude towards innovation and change 96
2.3.2.3. Acquire skills and increase company attractiveness for
employees 97
2.3.2.4. Build and leverage a partner network 98
2.3.2.5. Source and leverage technologies 101
2.3.2.6. Create additional revenue by leveraging company resources 101
2.3.2.7. Benefits as resources 102
2.3.3. Theoretical reasoning for Corporate Venture Capital 103
2.4. Corporate Venture Capital process 108
2.5. Process of setting up Corporate Venture Capital activities 110
X
2.5.1. Setting Corporate Venture Capital objectives 112
2.5.2. Corporate Venture Capital investment approach 113
2.5.2.1. Direct vs. indirect investment approach 113
2.5.2.2. Investment strategy 119
2.5.2.3. Additional issues regarding the investment approach 121
2.5.3. Organizational linkages 122
2.5.3.1. Role of the organization in the Corporate Venture Capital
process 124
2.5.3.2. Positioning of Corporate Venture Capital inside the
organization 128
2.5.4. Corporate Venture Capital staffing and compensation 131
2.5.4.1. Staffing Corporate Venture Capital managers 131
2.5.4.2. Compensating Corporate Venture Capital managers 134
2.5.5. Corporate Venture Capital monitoring 136
2.6. Process of running Corporate Venture Capital activities 138
2.6.1. Generation of deal flow 140
2.6.2. Assessment of investment opportunities 142
2.6.3. Investment in start-ups 145
2.6.4. Interaction with start-ups 146
2.6.4.1. Monitoring and supporting start-up development 147
2.6.4.2. Realizing strategic benefits through interaction with start-ups 148
2.6.5. Exit investments 149
2.6.6. Monitoring Corporate Venture Capital activities 151
2.7. Challenges for generating benefits through Corporate Venture capital 151
2.8. Overview of previous research on Corporate Venture Capital 153
3. eVe-Impact-Model 161
3.1. CVC-Impact-Model: linking CVC to sustainable competitive advantage 161
3.2. Operationalizing the CVC-Impact-Model 164
3,2.1. Operationalizing variable I: Level of CVC activity 164
3.2.2. Operationalizing variable 2: Level of benefits 166
3.2.3. Operationalizing variable 3: Level of potential to create competitive
advantage 169
3.2.3.1. Attributes determining sustainable competitive advantage 169
3.2.3.2. Testing CVC activities vs. CVC benefits 171
3.2.3.3. Testing benefits vs. sub-benefits 173
3.2.3.4. Ways to impact sustainable competitive advantage 174
3.2.3.5. Limitation to identifying resources that may impact
sustainable competitive advantage 176
3.2.3.6. Testing benefits from single cases vs. CVC results overall 177
3.2.3.7. Measuring attributes 178
3.3. Critical activities for impacting sustainable competitive advantage 182
4. ease studies 187
4.1. Research approach 187
4.1.1. Objectives of case studies 187
4.1.2. Case study interview design 188
XI
4.1.3. Quality ofresearch design 191
4.1.4. Case study targets 192
4.2. Company background 194
4.2.1. Intel Capital-Background 194
4.2.2. Media X Venture Capital -Background 195
4.2.3. Philips Corporate Venturing -Background 196
4.2.4. Novartis Venture Fund -Background 197
4.3. CVC activity 198
4.3.1. Intel Capital-CVC activity 198
4.3.2. Media X Venture Capital -CVC activity 199
4.3.3. Philips Corporate Venturing -CVC activity 200
4.3.4. Novartis Venture Fund -CVC activity 201
4.3.5. Overall firidings on the level ofCVC activity 203
4.4. Targeted and realized benefits 204
4.4.1. Intel Capital-Targeted and realized benefits 204
4.4.2. Media X Venture Capital-Targeted and realized benefits 208
4.4.3. Philips Corporate Venturing -Targeted and realized benefits 212
4.4.4. Novartis Venture Fund -Targeted and realized benefits 216
4.4.5. Overall findings on the level ofCVC benefits 220
4.4.5.1. Operationalization of determining level of CVC benefits 220
4.4.5.2. Targeted benefits 221
4.4.5.3. Realized benefits 223
4.5. Potential impact on sustainable competitive advantage 225
4.5.1. Intel Capital-Potential impact on sustainable competitive advantage 225
4.5.2. Media X Venture Capital-Potential impact on sustainable competitive
advantage 228
4.5.3. Philips Corporate Venturing -Potential impact on sustainable
competitive advantage 231
4.5.4. Novartis Venture Fund -Potential impact on sustainable competitive
~advantage 234
4.5.5. Overall findings on potential impact on sustainable competitive
advantage 235
4.5.5.1. Operationalization of level of potential impact on sustainable
competitive advantage 235
4.5.5.2. Results on assessment of attributes of sustainable competitive
advantage for CVC sub-benefits 236
4.5.5.3. Sub-benefits potentially meeting attributes of sustainable
competitive advantage 239
4.5.5.4. Further findings on attributes of sustainable competitive
advantage 240
4.6. CVC challenges 242
4.6.1. Intel Capital-CVC challenges 242
4.6.2. Media X Venture Capital-CVC challenges 245
4.6.3. Philips Corporate Venturing -CVC challenges 248
4.6.4. Novartis Venture Fund -CVC challenges 251
4.6.5. Overall findings on CVC challenges 254
4.6.5.1. Assessment of CVC challenges 254
XII
4.6.5.2. Conclusions from assessment ofCVC challenges 257
4.7. Overall applicability 261
5. Summary 263
5.1. Implications for research 263
5.2. Implications for management 266
5.3. Limitations and outlook 268
Appendix -Questionnaire 271
Bibliograpby 279