Venture Capital and Innovation Strategies

M. Da Rin, M.F. Penas

Research output: Working paperDiscussion paperOther research output

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Abstract

Venture capital is a specialized form of financial intermediation that often provides funding for costly technological innovation. Venture capital firms need to exit portfolio companies within about five years from the investment to generate returns for institutional investors. This paper is the first to examine the association of venture capital funding with a company’s choice of innovation strategies. We employ a unique dataset of over 10,000 innovative Dutch companies, some of which received venture financing. The data include detailed information on patent applications, innovation activities, financing sources, and other company characteristics. We find that companies backed by venture capital focus on the buildup of absorptive capacity, by engaging in in-house R&D, while at the same time acquiring external knowledge. We interpret this finding as a consequence of the time horizon of venture capital firms. Our results suggest that the correlation between venture capital funding and the build-up of absorptive capacity is not only due to a selection effect. We derive implications of these findings for corporate strategy and public policy.
Original languageEnglish
Place of PublicationTilburg
PublisherTILEC
Number of pages33
Volume2015-009
Publication statusPublished - 30 Apr 2015

Publication series

NameTILEC Discussion Paper
Volume2015-009

Fingerprint

Venture capital
Innovation strategy
Funding
Absorptive capacity
Venture capital firms
Financing
Innovation activities
Time horizon
Institutional investors
Venture capital financing
Financial intermediation
Public policy
Exit
Selection effects
Corporate strategy
Technological innovation
Patents

Keywords

  • Venture Capital
  • Entrepreneurship
  • Innovation Strategy
  • Research & Development
  • Public Policy

Cite this

Da Rin, M., & Penas, M. F. (2015). Venture Capital and Innovation Strategies. (TILEC Discussion Paper; Vol. 2015-009). Tilburg: TILEC.
Da Rin, M. ; Penas, M.F. / Venture Capital and Innovation Strategies. Tilburg : TILEC, 2015. (TILEC Discussion Paper).
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Da Rin, M & Penas, MF 2015 'Venture Capital and Innovation Strategies' TILEC Discussion Paper, vol. 2015-009, TILEC, Tilburg.

Venture Capital and Innovation Strategies. / Da Rin, M.; Penas, M.F.

Tilburg : TILEC, 2015. (TILEC Discussion Paper; Vol. 2015-009).

Research output: Working paperDiscussion paperOther research output

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AB - Venture capital is a specialized form of financial intermediation that often provides funding for costly technological innovation. Venture capital firms need to exit portfolio companies within about five years from the investment to generate returns for institutional investors. This paper is the first to examine the association of venture capital funding with a company’s choice of innovation strategies. We employ a unique dataset of over 10,000 innovative Dutch companies, some of which received venture financing. The data include detailed information on patent applications, innovation activities, financing sources, and other company characteristics. We find that companies backed by venture capital focus on the buildup of absorptive capacity, by engaging in in-house R&D, while at the same time acquiring external knowledge. We interpret this finding as a consequence of the time horizon of venture capital firms. Our results suggest that the correlation between venture capital funding and the build-up of absorptive capacity is not only due to a selection effect. We derive implications of these findings for corporate strategy and public policy.

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Da Rin M, Penas MF. Venture Capital and Innovation Strategies. Tilburg: TILEC. 2015 Apr 30. (TILEC Discussion Paper).