CORPORATE VENTURE CAPITAL AND THE PROBABILITY TO ACQUIRE THE BACKED START-UP: A REAL OPTION PERSPECTIVE

To sustain their competitive positions, an increasing number of corporates access new knowledge and technologies from emerging start-ups by engaging in Corporate Venture Capital (CVC) investments. CVC investments provide corporates the option to in-source start-ups’ knowledge and technologies through follow-on acquisitions. However acquiring a backed start-up is not always a guarantee of success. Then, corporates should consider which are the most appropriate conditions under which it is beneficial to acquire a CVC backed start-up. Utilizing the theoretical lens of Real Option, we examine the conditions under which a CVC investment may evolve into an acquisition of the backed start-up. We propose that CVC characteristics that mitigate both endogenous and exogenous uncertainties positively affect the corporate’s decision to acquire a backed start-up. In addition, we suggest the presence of other co-investing corporates also impacts the relationship between the CVC characteristics and the corporate’s propensity for a follow-on acquisition. The results indicate that higher technological proximity between the corporate and the backed start-up and advanced stage of CVC investment positively affect the corporate’s decision to acquire a backed start-up, whereas the number of CVC rounds reduces the likelihood of follow-on acquisition. Our empirical findings offer contributions to the CVC literature and they have important implications for managers engaging in CVC activities as a technology sourcing strategy.