The Company's Venture Capital And Enterprise Independent Innovation Investment

The rapid change of the technology and industry environment,and the intensified market competition have constantly destroyed the core competence of enterprises.In recent years,China's central government has proposed the "Innovation-driven Development Strategy",which fully emphasizing that using technological innovation to drive comprehensive innovation,so as to achieve national development.Accordingly,the engine of firm development is also shifting from "efficiency-driven"to "innovation-driven".Organizations could build "dynamic capabilities" to address the complexity of the environment and achieve new growth by integrating internal and external resources.For the incumbents,on the one hand,R&D activities has a long period and highly-risky process,on the other hand,the mature enterprises have"trajectory inertia",which goes further to limit their internal innovation activities.Therefore,these incumbents often look beyond the organization and continuously search for knowledge out of the organizational border,that is "open innovation",so as to not only increases the organization's knowledge stock,but also maintains a keen sense of cutting-edge technologies and business models.Corporate venture capital(hereafter,"CVC"),as an open innovation and corporate entrepreneurship strategy,has been widely adopted by non-financial companies(hereafter,"parent firms").Generally speaking,CVC makes investment in new ventures by setting up or participating in investment funds,namely,the CVC unit,so as to search and monitor the development of cutting-edge technologies,use this knowledge to build their own dynamic capabilities and achieve strategic renewal.According to the statistics from CB Insight,Global CVC deals and amounts reached its highest peak in 2018 with an approximately 47%increase over 2017.In recent years,under the encouragement and guidance of Chinese national policy,non-financial enterprises and venture capital industry have developed rapidly,corporate investors have become important participants in the innovation and entrepreneurship ecosystem.According to WIND database statistics,in 2018,among the top 10 venture investors ranking by the investment amounts,four of them are corporate investors,such as Tencent Industrial Fund,Alibaba Capital Partners,and so on.In addition,Chinese corporate investors have begun to go abroad,joined in the international market to search for knowledge or new projects,for example,in 2018,Legend Capital has been ranked among the top five over the world in terms of "investment activity",besides,the investment footprints of Legend Capital has expanded to the developed countries such as the UK,the US,and South Korea.Both CVC and innovation investment are effective ways for enterprises to enhance their innovation capability,develop their core competitiveness,and seek new growth.At the same time,both activities have a high demand for resources,knowledge,as well as technology.Therefore,can these two activities really form a good synergy?Is there a "competitive relationship" or a "substitutive relationship" between these two activities?How to reduce conflicts and enhance synergy between these two strategies?These issues are critical to the organization's strategic decision-making and future development.In Chapter 3,I collect 183 academic research related to CVC from 2000 to 2019.Based on the literature review and analysis,I explore the relationship among the "CVC triad"(parent company,CVC unit,and new venture),so as to establish the theoretical framework of the CVC.It can be inferred that existing research ignored the significant role of corporate governance factors played in organizational open innovation and corporate entrepreneurship.Some scholars such as Sahaym et al.(2016)and Anokhin et al.(2016)began to shift attention to the effect of governance factors on corporate entrepreneurship based on the principal-agent theory.But they emphasized the risk attribute of CVC while ignoring the high knowledge orientation and the strategic synergy of CVC,which also leads to the ambiguity and conflict of the research conclusion.Based on organizational learning theory,absorptive capacity theory,as well as agency theory,this dissertation explores the following questions from the perspective of the strategy of the parent firms:(1)Antecedent:What is the impact of the board of directors on CVC strategy?(2)Process-outcome:As an open innovation strategy,how does CVC strategy(CVC adoption,investment intensity,portfolio diversification)affect the parent company's internal innovation investment?(3)Boundary cts:What influence do the governance factors play in the synergy between firm internal innovation and open innovation?How do governance roles influence the relationship between CVC portfolio diversification and parent firm innovation?This research uses Chinese listed companies in Shanghai and Shenzhen as the research sample.The specific data information is hand-collected by the author and combined with multi-source second-hand data.The specific research contents and main conclusions are listed as follows.Chapter 4 mainly solves the first research question,which explores the role of the board of directors in CVC activities.Based on the empirical analysis of 1259 Chinese listed companies between 2005 and 2017,the following lusions are drawn:First,with the increase of the board size,CVC intensity shows the non-linear relationship of"U-shape".Meanwhile,this "U-shaped" relationship is more evident under the power structure of the CEO duality.Second,with the increase of the proportion of independent directors,the CVC intensity shows the "inverted U-shaped" trend,moreover,the relationship is amplified under the power structure of CEO duality.Third,the number of interlocking directors in the board negatively affects the CVC activities,the relationship is stronger under the power structure CEO duality.Chapter 5 further explored the second research question:How does CVC affect the internal R&D activities of the parent firms?How does CVC intensity as well as C.VC portfolio improve firm internal R&D activities?How to make two strategic activitiesCVC and internal R&D interact and collaborate well?The results are listed as follows:First,CVC can "push"the parent company to make more internal R&D investment by investing in cutting-edge technology,and it can also "pull" the parent firm's internal R&D investment through investing the demand side.The empirical evidence shows that compared to non-CVC adopted firms,those CVC adopted firms have a higher level of R&D intensity.Second,from the perspective of corporate strategy,CVC,as a firm open innovation strategy,has the dual effect of "synergy" and "competition" on parent firms' internal R&D investments.Therefore,CVC is not always "the more,the better",the relationship between CVC intensity and parent firms' internal innovation can be graphed as an '"inverted U-shape" relationship.Besides,this relationship is stable after controlling year and industry fixed effects,replacing variables of interests,taking the time-lag effect into account,as well as further controlling endogenous issues.Third,the diversification of CVC portfolio positively influence parent firms' internal innovation,specifically,the more industrial or geographically diversified of the CVC portfolios are,the higher the parent firms' internal R&D intensity will be.Chapter 6 explores the third research question:What are the important roles that the board of directors,CEO and the CVC unit paly in the relationship between CVC portfolio diversification and firm internal R&D investment.Results indicate that governance factors play a significant role in the synergy between the diversification of CVC portfolio and the enterprise's internal R&D investment.First,when the independent directors' ratio is higher or there are remote independent directors in the board,the positive influence of CVC portfolio diversification on firm internal R&D investment will be amplified.Secondly,when the CEO and chairman are non-duality,the positive relationship between CVC portfolio diversification and firm internal R&D investment will be amplified.Thirdly,when the enterprise has a lower shareholding in the CVC unit,the promotion effect of CVC portfolio diversification on firm internal R&D investment is stronger.Based on the above research conclusions,I propose the following policy recommendations.First of all,the development of corporate not only face complex institutional pressure but also face fierce industry competition and technological innovation.Therefore,they must constantly search,learn,and make the trail-and-error,so as to build dynamic capabilities.The conclusion of this paper points out.that CVC,as an open innovation and corporate entrepreneurship strategy can help enterprises effectively cope with the rapidly changing technological environment and increasingly fierce market competition,which is of great value to the company's future growth and strategic renewals.Therefore,with the rise of innovation and entrepreneurship activities around the world,non-financial companies can not only use their rich resource base and industry expertise to incubate and cultivate potential startups,but also satisfy the needs of the organization's knowledge and strategic development through technology investment.Secondly,either internal R&D activities or open innovation activities has great strategic value to the future development of organizations.However,the key point is to balance the relationship between these two activities and let them form a good mutual promotion and synergy.Although CVC activities can improve the overall level of parent firms R&D investment,it does not mean that the investment activities are"the more,the better",excessive investments may cause problems such as resource fragmentation,which will adversely affect organizational learning and innovation activities.Therefore,firm decision-makers need to reasonably allocate resources so as to grasp the appropriate investment intensity and diversification of the CVC investment portfolio,and strive to achieve good synergy between the CVC activities and the parent firm's R&D activities.Third,both professional venture capital and corporate investors need to manage their investment portfolios effectively.Corporate investors should design their portfolio according to their resource endowment and strategic intention,manage the diversification level of the portfolio,so as to harvest knowledge and profits in different industries and locations,share the risk or improve investment efficiency.Fourth,with the economic development and the continuous transformation of the institution,the environment of the capital market will also be greatly improved.However,companies still need to be aware of the important role of corporate governance factors in organizational strategic decision-making and learning activities:except for providing monitoring and managerial support,they also provide knowledge and resource support,so as to help companies accelerate the efficiency of information delivery and processing under a complex and diverse knowledge environment.By rationally matching CVC activities(strength,investment portfolio)and governance factors,we can improve the parent firm's R&D investment and help the incumbents realize value-added.Finally,as a "black horse" in the venture capital industry,CVC has become one of the three-powered forces with independent venture capital and government venture capital in recent years.Therefore,for the entities in the VC network,when selecting corporate investors as financing partners or joint investment partners,they should have a deeper understanding of CVC investors' motivations,logics,as well as strategies.The communication and exchange of different investment logic among investors should be strengthened,so as to achieve the common development of the venture capital industry in the Chinese market.