Venture capital and the hazard of exit: The role of corporate funds

Abstract

We study how corporate venture capital investments affect the hazard of exit outcomes in start-up companies. The presence of corporate venture capital in a syndicate of venture capitalists raises the likelihood of exit. However, these exits are most likely to be IPOs. We find that corporate venture capital firms actively contribute to their portfolio companies, rather than simply invest in companies with higher quality or co-invest with other prominent venture capitalists. Our results indicate that con icts of interest might arise in the presence of a strategic overlap between the parent firm of the corporate venture capitalist and the portfolio company. These results highlight the importance of the decisions a start-up has to make when choosing between alternative sources of financing.