The Life Cycle of Corporate Venture Capital

This paper studies the economics of financing innovation through establishing the life cycle of Corporate Venture Capital (CVC). Using an identification strategy that isolates firm-specific innovation shocks, I find that the CVC life cycle typically follows a period of deteriorated internal innovation and when external information is valuable, lending support to the hypothesis that firms use CVC to acquire innovation knowledge from startups. This information acquisition rationale is further supported at the operation and termination stage of the CVC life cycle -- CVCs select portfolio companies with similar technological focus but that have a different knowledge base, actively use newly acquired information, and change their human capital to facilitate information acquisition; CVC programs are terminated when the informational benefit diminishes.