Corporate Venture Capital follow-on investments: the role of co-investors

CVC investments allow corporates the option to internalize startups’ knowledge and technologies through follow-on investments. Since acquiring a backed startup is not always a guarantee of success, corporates should consider which are the most appropriate conditions under which it is beneficial to acquire the startup. Under the theoretical lens of Real Option theory, we examine the conditions under which a CVC investment may evolve into different kind of CVC follow-on investments. We suggest that the CVC characteristics that mitigate both endogenous and exogenous uncertainties positively affect the corporate’s decision to acquire a backed startup. In addition, we argue that 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 startup and advanced stage of CVC investment positively affect the corporate’s decision to acquire a backed startup, whereas the number of CVC rounds reduces the likelihood of follow-on acquisition. Our findings offer contributions to the CVC literature and they have important implications for managers engaging in CVC activities as a technology sourcing strategy.