IDEAS home Printed from https://ideas.repec.org/a/spr/jbecon/v93y2023i5d10.1007_s11573-022-01126-4.html
   My bibliography  Save this article

Between benefit and risk: how entrepreneurs evaluate corporate investors

Author

Listed:
  • Stefanie Weniger

    (Technical University of Munich (TUM))

  • Svenja Jarchow

    (Technical University of Munich (TUM))

Abstract

Start-up growth is inevitably dependent on the provision of external resources. Yet, even though corporate venture capital could be an attractive funding source as it provides financial as well as crucial additional resources, corporate venture capitalists (CVCs) are seen as a two-sided sword by entrepreneurs. We, therefore, investigate entrepreneurs’ consideration of potential CVC investors and conceptualize a model of their willingness to approach a CVC investor. Using a conjoint experiment with 1680 investor profiles evaluated by 105 entrepreneurs, we show that entrepreneurs consider the investor’s motivation, deal experience, access to firm-specific resources, and long-term financial commitment of funds. However, entrepreneurs’ evaluation differs depending on their need for specific resources, as well as their fundraising experience. We thereby highlight entrepreneurs’ anticipatory trade-off decisions in the light of resource dependence and help CVC managers to optimize their communication and management efforts to attract the most suitable portfolio companies.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:jbecon:v:93:y:2023:i:5:d:10.1007_s11573-022-01126-4
    DOI: 10.1007/s11573-022-01126-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11573-022-01126-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11573-022-01126-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Yan Alperovych & Georges Hübner, 2013. "Incremental impact of venture capital financing," Small Business Economics, Springer, vol. 41(3), pages 651-666, October.
    2. Laura Bottazzi & Marco Da Rin & Thomas Hellmann, 2016. "Editor's Choice The Importance of Trust for Investment: Evidence from Venture Capital," The Review of Financial Studies, Society for Financial Studies, vol. 29(9), pages 2283-2318.
    3. Massimo G. Colombo & Samuele Murtinu, 2017. "Venture Capital Investments in Europe and Portfolio Firms' Economic Performance: Independent Versus Corporate Investors," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(1), pages 35-66, February.
    4. Gary Dushnitsky & J. Myles Shaver, 2009. "Limitations to interorganizational knowledge acquisition: the paradox of corporate venture capital," Strategic Management Journal, Wiley Blackwell, vol. 30(10), pages 1045-1064, October.
    5. Thomas Keil & Markku V.J. Maula & Cameron Wilson, 2010. "Unique Resources of Corporate Venture Capitalists as a Key to Entry into Rigid Venture Capital Syndication Networks," Entrepreneurship Theory and Practice, , vol. 34(1), pages 83-103, January.
    6. Jochen Schmidt & Sven Heidenreich, 2018. "The role of human capital for entrepreneurial decision-making - investigating experience, skills and knowledge as antecedents to effectuation and causation," International Journal of Entrepreneurial Venturing, Inderscience Enterprises Ltd, vol. 10(3), pages 287-311.
    7. Richard A. Bettis & Constance E. Helfat & J. Myles Shaver & Massimo G. Colombo & Kourosh Shafi, 2016. "Swimming with sharks in Europe: When are they dangerous and what can new ventures do to defend themselves?," Strategic Management Journal, Wiley Blackwell, vol. 37(11), pages 2307-2322, November.
    8. Markku Maula & Erkko Autio & Gordon Murray, 2005. "Corporate Venture Capitalists and Independent Venture Capitalists: What do They Know, Who do They Know, and Should Entrepreneurs Care?," International Studies in Entrepreneurship, in: Tom Elfring (ed.), Corporate Entrepreneurship and Venturing, chapter 5, pages 101-126, Springer.
    9. L. Bottazzi & M. Da Rin & T. Hellmann, 2007. "The Importance of Trust for Investment: Evidence from Venture Capital," Working Papers 612, Dipartimento Scienze Economiche, Universita' di Bologna.
    10. Hsu, David H., 2007. "Experienced entrepreneurial founders, organizational capital, and venture capital funding," Research Policy, Elsevier, vol. 36(5), pages 722-741, June.
    11. Maula, Markku V.J. & Autio, Erkko & Murray, Gordon C., 2009. "Corporate venture capital and the balance of risks and rewards for portfolio companies," Journal of Business Venturing, Elsevier, vol. 24(3), pages 274-286, May.
    12. Douglas Cumming & Na Dai, 2013. "Why Do Entrepreneurs Switch Lead Venture Capitalists?," Entrepreneurship Theory and Practice, , vol. 37(5), pages 999-1017, September.
    13. Thomas J. Chemmanur & Elena Loutskina & Xuan Tian, 2014. "Corporate Venture Capital, Value Creation, and Innovation," The Review of Financial Studies, Society for Financial Studies, vol. 27(8), pages 2434-2473.
    14. Dean A. Shepherd & Andrew Zacharakis, 2001. "The venture capitalist-entrepreneur relationship: Control, trust and confidence in co-operative behaviour," Venture Capital, Taylor & Francis Journals, vol. 3(2), pages 129-149, April.
    15. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start‐Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, February.
    16. repec:bla:jfinan:v:59:y:2004:i:4:p:1805-1844 is not listed on IDEAS
    17. Cassar, Gavin, 2004. "The financing of business start-ups," Journal of Business Venturing, Elsevier, vol. 19(2), pages 261-283, March.
    18. Christiana Weber & Virgil Raibulet & Boris Bauke, 2016. "The process of relational rent generation in corporate venture capital investments," International Journal of Entrepreneurial Venturing, Inderscience Enterprises Ltd, vol. 8(1), pages 62-83.
    19. Elisa Alvarez-Garrido & Gary Dushnitsky, 2016. "Are entrepreneurial venture's innovation rates sensitive to investor complementary assets? Comparing biotech ventures backed by corporate and independent VCs," Strategic Management Journal, Wiley Blackwell, vol. 37(5), pages 819-834, May.
    20. ., 2011. "Resources, Environmental Change, and Survival: Asymmetric Paths of Young Independent and Subsidiary Organizations," Chapters, in: Howard E. Aldrich (ed.), An Evolutionary Approach to Entrepreneurship, chapter 13, pages 291-314, Edward Elgar Publishing.
    21. Paul Westhead & Deniz Ucbasaran & Mike Wright, 2005. "Decisions, Actions, and Performance: Do Novice, Serial, and Portfolio Entrepreneurs Differ?," Journal of Small Business Management, Taylor & Francis Journals, vol. 43(4), pages 393-417, October.
    22. Petty, Jeffrey S. & Gruber, Marc, 2011. ""In pursuit of the real deal": A longitudinal study of VC decision making," Journal of Business Venturing, Elsevier, vol. 26(2), pages 172-188, March.
    23. David Benson & Rosemarie H. Ziedonis, 2009. "Corporate Venture Capital as a Window on New Technologies: Implications for the Performance of Corporate Investors When Acquiring Startups," Organization Science, INFORMS, vol. 20(2), pages 329-351, April.
    24. Dushnitsky, Gary & Lenox, Michael J., 2006. "When does corporate venture capital investment create firm value?," Journal of Business Venturing, Elsevier, vol. 21(6), pages 753-772, November.
    25. Paul Chiambaretto & Bengtsson Maria & Anne-Sophie Fernandez & Malin Nãsholm, 2020. "Small and large firms’ trade-off between benefits and risks when choosing a coopetitor for innovation," Post-Print hal-02517035, HAL.
    26. Christian Granz & Eva Lutz & Marisa Henn, 2021. "Scout or coach? Value-added services as selection criteria in entrepreneurs’ venture capitalist selection," Venture Capital, Taylor & Francis Journals, vol. 23(1), pages 5-40, January.
    27. Scott Shane & Daniel Cable, 2002. "Network Ties, Reputation, and the Financing of New Ventures," Management Science, INFORMS, vol. 48(3), pages 364-381, March.
    28. Baum, Joel A. C. & Silverman, Brian S., 2004. "Picking winners or building them? Alliance, intellectual, and human capital as selection criteria in venture financing and performance of biotechnology startups," Journal of Business Venturing, Elsevier, vol. 19(3), pages 411-436, May.
    29. Gorman, Michael & Sahlman, William A., 1989. "What do venture capitalists do?," Journal of Business Venturing, Elsevier, vol. 4(4), pages 231-248, July.
    30. Moser, Kilian J. & Tumasjan, Andranik & Welpe, Isabell M., 2017. "Small but attractive: Dimensions of new venture employer attractiveness and the moderating role of applicants' entrepreneurial behaviors," Journal of Business Venturing, Elsevier, vol. 32(5), pages 588-610.
    31. David Reibstein & John E. G. Bateson & William Boulding, 1988. "Conjoint Analysis Reliability: Empirical Findings," Marketing Science, INFORMS, vol. 7(3), pages 271-286.
    32. Fairchild, Richard, 2011. "An entrepreneur's choice of venture capitalist or angel-financing: A behavioral game-theoretic approach," Journal of Business Venturing, Elsevier, vol. 26(3), pages 359-374, May.
    33. Franke, Nikolaus & Gruber, Marc & Harhoff, Dietmar & Henkel, Joachim, 2006. "What you are is what you like--similarity biases in venture capitalists' evaluations of start-up teams," Journal of Business Venturing, Elsevier, vol. 21(6), pages 802-826, November.
    34. Hellmann, Thomas, 2002. "A theory of strategic venture investing," Journal of Financial Economics, Elsevier, vol. 64(2), pages 285-314, May.
    35. Tobias Gutmann, 2019. "Harmonizing corporate venturing modes: an integrative review and research agenda," Management Review Quarterly, Springer, vol. 69(2), pages 121-157, June.
    36. Gompers, Paul A, 1995. "Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-1489, December.
    37. Preller, Rebecca & Patzelt, Holger & Breugst, Nicola, 2020. "Entrepreneurial visions in founding teams: Conceptualization, emergence, and effects on opportunity development," Journal of Business Venturing, Elsevier, vol. 35(2).
    38. Riquelme, Hernan & Rickards, Tudor, 1992. "Hybrid conjoint analysis: An estimation probe in new venture decisions," Journal of Business Venturing, Elsevier, vol. 7(6), pages 505-518, November.
    39. Shepherd, Dean A. & Zacharakis, Andrew & Baron, Robert A., 2003. "VCs' decision processes: Evidence suggesting more experience may not always be better," Journal of Business Venturing, Elsevier, vol. 18(3), pages 381-401, May.
    40. G. Page West III, 2007. "Collective Cognition: When Entrepreneurial Teams, Not Individuals, Make Decisions," Entrepreneurship Theory and Practice, , vol. 31(1), pages 77-102, January.
    41. Ola Bengtsson & Frederick Wang, 2010. "What Matters in Venture Capital? Evidence from Entrepreneurs’ Stated Preferences," Financial Management, Financial Management Association International, vol. 39(4), pages 1367-1401, December.
    42. James Henderson & Benoit Leleux, 2005. "Corporate Venture Capital: Realizing Resource Combinations and Transfers," International Studies in Entrepreneurship, in: Tom Elfring (ed.), Corporate Entrepreneurship and Venturing, chapter 4, pages 73-100, Springer.
    43. Warnick, Benjamin J. & Murnieks, Charles Y. & McMullen, Jeffery S. & Brooks, Wade T., 2018. "Passion for entrepreneurship or passion for the product? A conjoint analysis of angel and VC decision-making," Journal of Business Venturing, Elsevier, vol. 33(3), pages 315-332.
    44. Sapienza, Harry J., 1992. "When do venture capitalists add value?," Journal of Business Venturing, Elsevier, vol. 7(1), pages 9-27, January.
    45. Paul Gompers, 2002. "Corporations and the financing of innovation: The corporate venturing experience," Economic Review, Federal Reserve Bank of Atlanta, vol. 87(Q4), pages 1-17.
    46. Markku Maula & Erkko Autio & Gordon Murray, 2005. "Corporate Venture Capitalists and Independent Venture Capitalists: What do they know, Who do They Know and Should Entrepreneurs Care?," Venture Capital, Taylor & Francis Journals, vol. 7(1), pages 3-21, January.
    47. Murnieks, Charles Y. & Cardon, Melissa S. & Sudek, Richard & White, T. Daniel & Brooks, Wade T., 2016. "Drawn to the fire: The role of passion, tenacity and inspirational leadership in angel investing," Journal of Business Venturing, Elsevier, vol. 31(4), pages 468-484.
    48. Yakir Falik & Tom Lahti & Henrik Keinonen, 2016. "Does startup experience matter? Venture capital selection criteria among Israeli entrepreneurs," Venture Capital, Taylor & Francis Journals, vol. 18(2), pages 149-174, April.
    49. 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.
    50. Haemin Dennis Park & H. Kevin Steensma, 2012. "When does corporate venture capital add value for new ventures?," Strategic Management Journal, Wiley Blackwell, vol. 33(1), pages 1-22, January.
    51. Masulis, Ronald W. & Nahata, Rajarishi, 2009. "Financial contracting with strategic investors: Evidence from corporate venture capital backed IPOs," Journal of Financial Intermediation, Elsevier, vol. 18(4), pages 599-631, October.
    52. Franz Simon & Rainer Harms & Holger Schiele, 2019. "Managing corporate-startup relationships: what matters for entrepreneurs?," International Journal of Entrepreneurial Venturing, Inderscience Enterprises Ltd, vol. 11(2), pages 164-186.
    53. Yang, Yi & Narayanan, V.K. & Zahra, Shaker, 2009. "Developing the selection and valuation capabilities through learning: The case of corporate venture capital," Journal of Business Venturing, Elsevier, vol. 24(3), pages 261-273, May.
    54. Dave Valliere & Rein Peterson, 2007. "When entrepreneurs choose VCs: Experience, choice criteria and introspection accuracy," Venture Capital, Taylor & Francis Journals, vol. 9(4), pages 285-309, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jeon, Euiju & Maula, Markku, 2022. "Progress toward understanding tensions in corporate venture capital: A systematic review," Journal of Business Venturing, Elsevier, vol. 37(4).
    2. Patrick Röhm, 2018. "Exploring the landscape of corporate venture capital: a systematic review of the entrepreneurial and finance literature," Management Review Quarterly, Springer, vol. 68(3), pages 279-319, August.
    3. Cabral, Joseph J. & Kumar, M.V. Shyam & Park, Haemin Dennis, 2024. "The value of a reputation for sustaining commitment in interfirm relationships: The inclusion of corporate venture capitalists in investment syndicates," Journal of Business Venturing, Elsevier, vol. 39(3).
    4. Sunny Hahn & Jina Kang, 2017. "Complementary or conflictory?: the effects of the composition of the syndicate on venture capital-backed IPOs in the US stock market," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 44(1), pages 77-102, March.
    5. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 573-648, Elsevier.
    6. Polzin, Friedemann & Sanders, Mark & Stavlöt, Ulrika, 2018. "Do investors and entrepreneurs match? – Evidence from The Netherlands and Sweden," Technological Forecasting and Social Change, Elsevier, vol. 127(C), pages 112-126.
    7. Rafał Morawczyński, 2020. "Venture Capitalists’ Investment Criteria in Poland: Entrepreneurial Opportunities, Entrepreneurs, and Founding Teams," Administrative Sciences, MDPI, vol. 10(4), pages 1-30, October.
    8. Shuwaikh, Fatima & Dubocage, Emmanuelle, 2022. "Access to the Corporate Investors' Complementary Resources: A Leverage for Innovation in Biotech Venture Capital-Backed Companies," Technological Forecasting and Social Change, Elsevier, vol. 175(C).
    9. Valérie Revest & Alessandro Sapio, 2012. "Financing technology-based small firms in Europe: what do we know?," Small Business Economics, Springer, vol. 39(1), pages 179-205, July.
    10. 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.
    11. Annalisa Croce & Elisa Ughetto, 2019. "The role of venture quality and investor reputation in the switching phenomenon to different types of venture capitalists," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(2), pages 191-227, June.
    12. Bugl, Benjamin M. & Balz, Frank P. & Kanbach, Dominik K., 2022. "Leveraging smart capital through corporate venture capital: A typology of value creation for new venture firms," Journal of Business Venturing Insights, Elsevier, vol. 17(C).
    13. 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.
    14. Lohwasser, Todor S., 2020. "Meta-analyzing the relative performance of venture capital-backed firms," Discussion Papers of the Institute for Organisational Economics 4/2020, University of Münster, Institute for Organisational Economics.
    15. Balz, Frank P. & Brinkmann, Florian & Kanbach, Dominik K., 2023. "The impact of independent and heterogeneous corporate venture capital on firm efficiency," Journal of Business Venturing Insights, Elsevier, vol. 19(C).
    16. Veer, Theresa & Yang, Philip & Riepe, Jan, 2022. "Ventures' conscious knowledge transfer to close partners, and beyond: A framework of performance, complementarity, knowledge disclosure, and knowledge broadcasting," Journal of Business Venturing, Elsevier, vol. 37(3).
    17. Ji Youn (Rose) Kim & Haemin Dennis Park, 2017. "Two Faces of Early Corporate Venture Capital Funding: Promoting Innovation and Inhibiting IPOs," Strategy Science, INFORMS, vol. 2(3), pages 161-175, September.
    18. Lin, Jun-You, 2020. "What affects new venture firm’s innovation more in corporate venture capital?," European Management Journal, Elsevier, vol. 38(4), pages 646-660.
    19. Lahr, Henry & Mina, Andrea, 2016. "Venture capital investments and the technological performance of portfolio firms," Research Policy, Elsevier, vol. 45(1), pages 303-318.
    20. Petrit Ademi & Monika C. Schuhmacher & Andrew L. Zacharakis, 2023. "Evaluating Affordance-Based Opportunities: A Conjoint Experiment of Corporate Venture Capital Managers’ Decision-Making," Entrepreneurship Theory and Practice, , vol. 47(6), pages 2293-2322, November.

    More about this item

    Keywords

    Corporate venture capital; Investor attractiveness; Entrepreneurial decision-making; Resource need; Entrepreneurial experience; Conjoint analysis;
    All these keywords.

    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jbecon:v:93:y:2023:i:5:d:10.1007_s11573-022-01126-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.