Venture Capital and Innovation Strategies

M. Da Rin, M.F. Penas

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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

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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). TILEC.