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A world of difference? The impact of corporate venture capitalists’ investment motivation on startup valuation

Author

Listed:
  • Patrick Röhm

    (University of Hohenheim)

  • Andreas Köhn

    (University of Hohenheim)

  • Andreas Kuckertz

    (University of Hohenheim)

  • Hermann S. Dehnen

    (RWTH Aachen University)

Abstract

Corporate venture capital (CVC) investors are regularly painted with the same brush, a fact underscored by the often observed belief in the extant literature that corporate venture capitalists (CVCs) form a homogeneous group. In contrast to this simplifying perspective, this paper categorizes CVCs into subgroups by examining their levels of strategic and financial investment motivation using computer-aided text analysis and cluster analysis. To validate the resulting clusters, this paper studies the impact of CVC type on startup valuation from an intra-group perspective by applying hierarchical linear modeling, thus illustrating which particular investment motivation might be preferable to others in the context of negotiating valuations. An empirical analysis of 52 CVC mission statements and 147 startup valuations between January 2009 and January 2016 revealed that first, CVCs with a strategic investment motivation assign lower startup valuations than CVCs with an analytic motivation that have moderate levels of the two scrutinized dimensions, suggesting that entrepreneurs trade off these CVCs’ value-adding contributions against a valuation discount; second, CVCs with an unfocused investment motivation pay significantly higher purchase prices, thus supporting the hypothesis that they have a so-called liability of vacillation; and third, the valuations of CVCs with a financial investment motive are not significantly different from those of their analytic peers. In sum, our results add to the knowledge of the continuum of corporate investors’ investment motivation by illustrating how startup valuations differ across CVC types.

Suggested Citation

  • Patrick Röhm & Andreas Köhn & Andreas Kuckertz & Hermann S. Dehnen, 2018. "A world of difference? The impact of corporate venture capitalists’ investment motivation on startup valuation," Journal of Business Economics, Springer, vol. 88(3), pages 531-557, May.
    • Handle: RePEc:spr:jbecon:v:88:y:2018:i:3:d:10.1007_s11573-017-0857-5
    DOI: 10.1007/s11573-017-0857-5
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    Cited by:

    1. Carolin Bock & Christian Hackober, 2020. "Unicorns—what drives multibillion-dollar valuations?," Business Research, Springer;German Academic Association for Business Research, vol. 13(3), pages 949-984, November.
    2. Max Berre & Benjamin Le Pendeven, 2023. "What do we know about startup-valuation drivers? A systematic literature review 1," Post-Print hal-04232855, HAL.
    3. Stefanie Weniger & Svenja Jarchow, 2023. "Between benefit and risk: how entrepreneurs evaluate corporate investors," Journal of Business Economics, Springer, vol. 93(5), pages 783-816, July.
    4. Patrick Haslanger & Erik E. Lehmann & Nikolaus Seitz, 2023. "The performance effects of corporate venture capital: a meta-analysis," The Journal of Technology Transfer, Springer, vol. 48(6), pages 2132-2160, December.
    5. Franziska Schlichte & Sebastian Junge & Jan Mammen, 2019. "Being at the right place at the right time: does the timing within technology waves determine new venture success?," Journal of Business Economics, Springer, vol. 89(8), pages 995-1021, December.
    6. Que, Jiangjing & Zhang, Xueyong, 2021. "Money chasing hot industries? Investor attention and valuation of venture capital backed firms," Journal of Corporate Finance, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Corporate venture capital (CVC); Valuation; Startups; Computer-aided text analysis (CATA); Cluster analysis; Hierarchical linear modeling (HLM);
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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