The Determinants of Knowledge Exploration and Exploitation in Corporate Venture Capital Investment

Abstract

This study examines how firms learn from corporate venture capital (CVC) investments. Applying the explorationa??exploitation framework of organizational learning in the context of CVC investments, I hypothesize that the key determinants of this learning process are (1) market diversification of investments (2) technological relatedness and (3) market relatedness between the investors and investees. Moreover, stronger ties between corporate investors and investees are likely to enhance the learning benefits. Based on a sample of 516 investor-investee pairs in the biotechnology and semiconductor industries, I find that investment diversification has a positive impact on explorative learning. The findings also suggest that both technological and market relatedness have a positive impact on a firma??s exploitative learning, and that a moderate level of technological relatedness enhances an investora??s knowledge exploration as well. Moreover, investors and investees with longer duration ties benefit more from exploitative learning when investing in related ventures.