How should established firms decide whether to make corporate venture capital (CVC) investments with uncertain future prospects? This is an important question as the economic significance of CVC has increased over the years. CVC, as a type of external corporate venturing, is a minority equity investment that established firms make in independent entrepreneurial ventures that are fairly new and not publicly traded (Dushnitsky, 2004; Roberts & Berry, 1985). For established firms, venture capital investments have often been touted by both academia and practitioners as windows on opportunities and, in particular, windows on new technologies (Chesbrough, 2002; Dushnitsky & Lenox, 2005a). For entrepreneurial ventures, established firms, together with institutional investors and wealthy individuals, are among the more important sources of funding.Despite the economic importance of corporate venture capital, established firms face at least two major challenges in making corporate venture capital investments. First, corporate venture capital may be plagued by information asymmetry and conflict of interest problems. With information asymmetry, it is difficult for established firms to ascertain ex ante the economic value of entrepreneurial ventures; ventures are also wary of disclosing too much information to established firms for fear of imitation. Expost of the investment, established firms may be concerned about lack of diligent efforts on the part of entrepreneurs and ventures about expropriation on the part of established firms. Existing research studies on corporate venture capital have provided useful insights on how these concerns about the behavioral tendencies of each party may. Venture capital investment decisions and frameworks.
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