Beyond funding: Within-Industry Corporate Venture Capital and Industry Concentration

Corporate Venture Capital (CVC) investments have fostered innovation among young firms,since CVC investors not only provide financial resources, but they also offer many strategicresources that are not offered by other funders, such as industry-specific expertise, know-howsand other intangible resources that could be hard to imitate in the early start of young ventures.However, CVC investments often involve established industry incumbents that may takeadvantage of their CVC-backed ventures, that is, by appropriating their know-hows anddisruptive technologies. In particular, within-industry CVC investments, where both investorsand investees belong to the same industry, may also serve as a strategic maneuver with dualpurpose: they enable incumbents to preempt potential competitors from entering markets, whilesimultaneously reinforcing their own competitive positions within their respective industries.The current study delves into a comprehensive investigation of the relationship between withinindustry CVC investments and industry concentration levels. This research shows that the levelof within-industry CVC investments, relative to all other investments increases industryconcentration, even in the absence of mergers and acquisition activities. We use an extensiveindustry-level dataset of US industries from 2001 to 2016. The implications of this researchextend beyond academic boundaries, resonating profoundly with regulators, entrepreneurialendeavors, and industry incumbents. In this regard, understanding the ramifications of withinindustry CVC investments on market concentration provides valuable insights for regulators inshaping policies that maintain a balance between fostering innovation and preventing the undueaccumulation of market powers. Moreover, young ventures could leverage this knowledge tonavigate the complex terrain of CVC partnerships, thereby enhancing their long-term survival.Furthermore, industry incumbents could strategically position themselves in CVC landscapes,thus solidifying their competitive standing within their market sectors.