“Corporations invest in mature and potentially less risky ventures” than independent VCs do, they write. When Dushnitsky and Shapira examined data from more than 13,000 venture capital rounds during the 1990s, that’s exactly what they found. That is, irrespective of their strategic or financial orientation, corporate VCs would invest in more mature companies than independent VCs do and would invest through larger syndicates (groups of VC firms that team up to make an investment). In a paper titled, “ Entrepreneurial Finance Meets Organizational Reality: Comparing Investment Practices by Corporate and Independent Venture Capitalists,” Dushnitsky and co-author Zur Shapira at New York University hypothesize that given the typical compensation arrangement, corporate VCs would shy away from risk. If a corporation wants its internal VCs to pursue investment practices that are similar to those used by their independent counterparts, it should match their pay packages. Instead, these firms should consider compensating their internal VCs like independent VCs, giving them a stake in the future returns of the ventures they invest in, Dushnitsky says. Specifically, they may be undercutting themselves by ignoring the effects of the compensation schemes awarded to their in-house VCs.Ĭompanies often assign internal VC staff salaries the same way they do other corporate staffers. Some companies may not be doing that, says Wharton management professor Gary Dushnitsky, who studies entrepreneurship. But to score these kinds of wins, companies must organize their VC efforts with an eye to the delicate balance between entrepreneurial finance and organizational reality. But others have launched corporate venture capital units as well, including Comcast, Johnson & Johnson and UPS.Ĭorporate VC units aim to help their parent companies find highly profitable new projects, spot promising technologies before competitors do, and collaborate with the best new thinkers in their field.
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Perhaps the most notable example is Intel, whose VC unit has invested in such entrepreneurial success stories as Red Hat, the North Carolina software distributor, and WebMD, the online medical-information company.
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