Corporate Venture Capital and

In this paper, we focus on the potential innovation benefits to corporate venture capital, i.e. equity investments in entrepreneurial ventures by incumbent firms. In particular, we ask do firms that invest corporate venture capital learn about and appropriate new technologies and practices from those ventures they invest. Our investigation builds on two theoretical pillars. First, incumbent firms operating in competitive markets are inclined towards introducing innovations. Second, the knowledge necessary to generate innovation may likely reside outside the boundary of the incumbent firm and in entrepreneurial ventures. Thus, we propose that corporate venture capital programs may be instrumental in harvesting innovations from entrepreneurial ventures and thus an important part of a firm’s overall innovation strategy. We hypothesize that these programs are especially effective in weak intellectual property regimes. To this end, we explore the relationship between corporate venture capital and incumbent firm innovation by analyzing a large panel of public firms that pursued venturing activity or patented over a twenty-year period. We find that increases in corporate venture capital investments are associated with subsequent increases in firm patenting. The findings of this study have important implications for the study of inter-organizational learning and the development of firm’s dynamic capabilities.