Strategic Management Journal

Strat. Mgmt. J., 37: 819–834 (2016)

Published online EarlyView 19 January 2015 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2359
Received 16 August 2012; Final revision received 18 November 2014

ARE ENTREPRENEURIAL VENTURE’S INNOVATION

RATES SENSITIVE TO INVESTOR COMPLEMENTARY
ASSETS? COMPARING BIOTECH VENTURES BACKED
BY CORPORATE AND INDEPENDENT VCs
ELISA ALVAREZ-GARRIDO1 and GARY DUSHNITSKY2*
1
Department of Managerial Sciences, J. Mack Robinson College of Business,
Georgia State University, Atlanta, Georgia, U.S.A.
2
Strategy & Entrepreneurship Area, London Business School, London, U.K.

Entrepreneurial ventures are a key source of innovation. Nowadays, ventures are backed by a
wide array of investors whose complementary asset profiles differ significantly. We therefore
assert that entrepreneurial ventures can no longer be studied as a homogeneous group. Rather,
we harness the inherent dichotomy in the profiles of independent VCs and corporate investors
to study ventures’ innovation outcomes. Our sample consists of 545 U.S. biotechnology ventures
founded between 1990 and 2003 and backed by independent venture capitalists (VCs) or corporate
VCs (CVC). We find CVCs’ investees exhibit higher rates of innovation output, compared to
independent VC-backed peers. Moreover, the performance of CVC-backed ventures is sensitive
to their ability to leverage corporate assets, underscoring the role of CVC accessibility and FDA
approval requirements as the mechanisms associated with CVC contribution. Copyright © 2014
John Wiley & Sons, Ltd.

INTRODUCTION

Corporate venture funding, the investment
of corporate funds into external endeavors,
is expected to become a much more cru-
cial source of funding to the industry, with
30 percent of CEOs surveyed saying they will
tap corporate venture capital as a finance
source in the next 12 months, versus only
10 percent who did so in the past 12 months.
--- PwC 2012 CEO survey of the California
biomedical industry (in collaboration with
California Healthcare Institute and Bay Area
Bioscience Association)
Keywords: entrepreneurial ventures; corporate venture
capital; venture capital; patents; publications; innovation
*Correspondence to: Gary Dushnitsky, London Business School,
Regent’s Park, London NW1 4SA, United Kingdom. E-mail:
gdushnitsky@london.edu
Entrepreneurial ventures are an important source
of innovative ideas and products (e.g., Acs and
Audretsch, 1988). Indeed, it has been argued that
venture capital funds stimulate innovation by back-
ing these ventures (Kortum and Lerner, 2000;
Samila and Sorenson, 2010). Yet, independent
venture capitalists (VCs) are only one source of
entrepreneurial funding. Increasingly, we observe
a diverse range of investors operating in the fund-
ing landscape. As the quote by the left suggests,
corporate investors, also known as corporate ven-
ture capitalists (CVCs), are becoming an important
alternative to VCs (Dushnitsky, 2012). And while
they share many practices with independent VCs,
corporate investors have access to a wide set of cor-
porate complementary assets that independent VCs
lack (Dushnitsky, 2012; Gompers and Lerner, 2000;

Copyright © 2014 John Wiley & Sons, Ltd.

820 E. Alvarez-Garrido and G. Dushnitsky
Maula, 2007). These include hundreds of in-house
scientists, thousands of marketing and regulatory
experts, and dozens of manufacturing sites (Dush-
nitsky, 2012; Gompers and Lerner, 2000; Maula,
2007). The result is a theoretical gap: whereas
extant work focuses on the innovation implication
of independent VCs, we know little about the ways
in which distinct investor types are associated with
different start-up innovation trajectories.
The purpose of this paper is to advance our
understanding of entrepreneurial innovation output
in light of the shifting landscape of entrepreneurial
finance. Our starting point is the observation that
nowadays there is a notable variety in investors’
complementary asset profiles. Extant work, we
postulate, should go beyond focusing solely on
venture’s innate capabilities, and move towards
accounting for diversity in investors’ profiles.
Taken to the extreme, it is possible that an oth-
erwise homogenous group of entrepreneurial
ventures exhibits diversity in their innovation
output, solely due to access to different types of
investors, each with a distinct complementary asset
profile. In this paper, we document the distinct
innovation implication of investors’ profiles, and
explore the mechanisms by which they unfold.
To that end, we tackle two related questions. First,
we explore whether the innovative outcomes of
entrepreneurial ventures are sensitive to the comple-
mentary asset profile of their investors. To address
this question, we harness the inherent dichotomy
in the asset profile of independent VCs and corpo-
rate VC (CVCs) investors. Next, we drill further
and explore the mechanisms by which investors’
complementary assets affect the ventures. Here, we
exploit the fact that there are two dimensions that
shape a venture’s ability to leverage corporate com-
plementary assets: geographic proximity and strong
regulatory demands. We test whether the differ-
ential impact of corporate venture capital versus
venture capital funding is sensitive to these two
dimensions.
We investigate these issues by studying 545
biotechnology ventures founded between 1990 and
2003 and observed through 2011. A third of the
ventures (185 biotech companies) are backed by
corporate venture capitalists, and the remainder
ventures are solely VC backed. The biotechnology
industry is an ideal setting to test our hypotheses
as (1) it is capital intensive and requires substantial
venture investment, and (2) it is an industry where
valuable innovations are patented and published
Copyright © 2014 John Wiley & Sons, Ltd.
(Stokes, 1997), leading companies to invest in both
(Rosenberg, 1990).
Our analysis pivots on three sources of varia-
tion. We explore whether the innovation output of
entrepreneurial ventures (i.e., patents and publica-
tions) is sensitive to investor type (i.e., VC ver-
sus CVC), and, specifically, the factors affecting
the ability to leverage corporate complementary
assets (e.g., accessibility to corporate R&D facili-
ties, and applicability of its Food and Drug Admin-
istration [FDA] approval capabilities). We find that
CVC-backed biotech ventures exhibit greater pub-
lication and patent output compared to VC-backed
peers.
Importantly, the results highlight the mecha-
nisms by which biotechnology ventures benefit
from investors’ complementary assets. We posit
that ventures subjected to FDA approval benefit
from corporate regulatory know-how. Indeed, we
find that, compared to a VC-backed venture, an
investment from a CVC is associated with greater
innovation output. In line with the hypothesized
mechanism, the effect is exclusive to CVC-backed
ventures that are subjected to FDA approval.
We also underscore the role of geographic prox-
imity to the CVC investor, which affords access
to corporate R&D facilities and personnel. Indeed,
we find that, compared to a VC-backed venture, an
investment from a CVC is associated with greater
innovation output. Consistent with our proposed
mechanism, the performance benefits are highest
for CVC-backed ventures that are proximate to the
corporate investor. The results are robust to selec-
tion effects and persist across different estimation
approaches.
This study makes several contributions. First,
the findings suggest that the complementary asset
profile of a venture’s partners (i.e., investors)
can play an important role in the outcome of its
innovative processes. We hence underscore the
need to go beyond venture’s innate capabilities and
move towards accounting for diversity in investors’
profiles. Moreover, we document the distinct
innovation implications of investors’ profiles and
explore the mechanisms by which they unfold.
Second, in so doing, we illustrate the implications
of the shifting landscape of entrepreneurial finance.
Accordingly, it is the first paper, to the best of
our knowledge, to investigate the consequences
of different investors along different innovative
outcomes.
Strat. Mgmt. J., 37: 819–834 (2016)
DOI: 10.1002/smj
 Comparing Biotech Ventures Backed by Corporate and Independent VCs
HYPOTHESES DEVELOPMENT
We conjecture a venture’s innovative output is
affected by investor type, and particularly investors’
complementary assets. The story of the first com-
mercial biotechnology drug illustrates our theoret-
ical rationale. The development of human insulin
using recombinant-DNA technology was under-
taken by the first biotech venture, Genentech, and its
co-founders Professor Boyer and venture capitalist
Robert Swanson. Yet, it was a pharmaceutical cor-
poration, Eli Lilly, which managed the drug through
clinical trials, FDA regulatory approval, and dis-
tributed it through its sales force (Hughes, 2001).
The story suggests that an inventive venture can
greatly benefit from leveraging corporate comple-
mentary assets along different stages of the industry
value chain.
Drawing on these observations, the next sub-
section asks: Are the innovative outcomes of
entrepreneurial ventures sensitive to the comple-
mentary asset profile of their investors? We further
drill down and ask: What are the mechanisms by
which investors’ complementary assets (or lack
thereof) affect the funded ventures?
Implications to ventures’ innovation outcomes:
investor type
Our conjectures are driven by the observation that
entrepreneurial ventures are backed by a heteroge-
neous group of investors. The underlying rationale
is that otherwise similar ventures would follow
distinct innovation rates, as a result of nurturing
by investors with heterogeneous complementary
asset profiles. Below, we compare and discuss two
investor types, and proceed to hypothesize as to the
implication to ventures’ innovation outcomes.
Independent venture capital firms
Independent VCs invest in entrepreneurial ventures
facing substantial technology, business model, and
operational risk with the goal of achieving finan-
cial returns. To that end, independent VCs, or gen-
eral partners, launch a dedicated fund that is usually
structured as a limited liability partnership, raising
capital from third parties or limited partners (e.g.,
pension funds, high net worth individuals and fam-
ilies). The venture capitalists are given a prespeci-
fied time window—7 to 12 years for biotechnology
investments—after which the fund is dissolved and
Copyright © 2014 John Wiley & Sons, Ltd.
821
capital (and gains) disbursed to limited partners. It is
common for a focal venture capital fund to co-invest
along with other VCs.
The venture capital general partners are solely
dedicated to their investments, with no other
business or operations.1 Accordingly, general
partners maintain relatively small teams: the
average (median) headcount is 4.7 (4) (Gorman
and Sahlman, 1989). These individuals usually
have an investment or mergers and acquisitions
background, or industry-specific expertise associ-
ated with a successful entrepreneurial or executive
track record. Venture capitalists offer a variety of
value-added services to their portfolio companies,
including assistance with strategy formulation, per-
sonnel recruitment, and networking entrepreneurs
with investors and potential acquirers (Sapienza,
1992). Because scouting and nurturing require
substantial person-to-person interaction, VCs tend
to invest locally (Sorenson and Stuart, 2001).
Corporate investors
Large incumbent corporations can undertake equity
investments in innovative ventures similar to inde-
pendent VCs. The activity is often managed by a
corporate venture capital program that seeks a mix
of financial returns as well as strategic gains, usually
in the form of a window on technology (Dushnit-
sky, 2012). The capital is typically provided by the
corporation on an on-going basis. It is common for
CVCs to co-invest along with independent VCs.
Notably, corporations have multiple lines of
businesses, and their operation extends beyond
corporate venture capital. For example, large phar-
maceutical corporations possess complementary
assets along the industry value chain, including
scientific laboratories and research facilities, clin-
ical trial sites, as well as large-scale manufacturing
infrastructure and sales force (Pisano, 2006). Relat-
edly, while a corporate venture capital program is
often small in size—the average full-time personnel
is below 10 (Dushnitsky, 2012)—the corporations
usually employ thousands of individuals across a
wide functional range. That is, a corporate ven-
ture capital program can draw on R&D personnel
for technological due diligence and research advice,
1
During the term of the fund, the VC general partners scout for
attractive targets, nurture the portfolio of funded ventures, and
seek to exit the successful ventures so as to realize and disburse
the financial returns.
Strat. Mgmt. J., 37: 819–834 (2016)
DOI: 10.1002/smj
822 E. Alvarez-Garrido and G. Dushnitsky
Table 1. A comparison of corporate and independent venture capitalists

Independent VC Corporate VC

Definition An investor dedicated to undertaking An established firm undertaking minority equity

equity investment in entrepreneurial
ventures
Investor description A dedicated financial investor
Scope Investment activity is the sole business
of the independent VC. Broadly
speaking, IVC’s assets (capital
under management) are fully
allocated toward investment in
entrepreneurial ventures
Structure Limited liability partnership (LLP).
General partners (GP) raise funds
from limited partners (LP) and then
invest the capital in entrepreneurial
ventures
Assets and resources Professional investment team, and
financial capital committed by the
LPs
Personnel size and Average number of GP personnel is
background 4.7. Their background usually
consists of investment professional,
former entrepreneurs, sometimes
with advanced Ph.D. background
investment in entrepreneurial ventures
A corporation with one or more lines of
business. Investment responsibilities lie with
CVC program
Investment activity is not the main business of
the investing firm. Annual investment
amounts are a fraction of total revenues or
assets of the investing firm
Various legal and organizational structures. The
CVC team is based within a business unit or
headquarters. The parent corporation is the
sole source of capital, and also provides
support via access to R&D, business, and
other corporate functions
Professional investment team, capital provided
by the corporation, access to corporate
infrastructure including R&D as well as
manufacturing facilities, dedicated units to
manage national and international regulatory
demands, and global sales force with deep ties
to medical doctors, hospitals, and other drug
buyers (e.g., HMOs)
Parent firm: Total number of CVC parent
corporations ∼ 60,000. These include
thousands of highly specialized personnel in
R&D, sales and marketing, as well as legal
and regulatory areas
CVC unit: Average number of personnel within
the CVC unit is 4.3. Their background usually
consists of corporate personnel, and may also
involve former VC professionals, former
entrepreneurs, or investment professionals

Sources: Gorman and Sahlman (1989), Gompers and Lerner (2004), Dushnitsky (2012), Compustat.

legal staff for navigating regulatory demands, and
corporate executives for time-sensitive insights into
industry trends (Henricks, 2002). Indeed, corporate
venture capital programs often leverage access to
corporate personnel and complementary assets to
support and speed ventures’ development (Dushnit-
sky, 2012; Keil et al., 2008).
To summarize, Table 1 compares independent
and corporate VC profiles. It highlights the dif-
ferences in complementary asset profiles, which
have immediate implications to ventures’ innova-
tion outcomes. Below, we share a quote that illus-
trates a venture’s view of the relative contribution
of corporate and independent VC, and then develop
those insights theoretically.
Copyright © 2014 John Wiley & Sons, Ltd.
David Mack, CEO of Angiosyn, notes:
We had a lot of options for the company,
including traditional private venture funding.
Pfizer really showed us they know this space.
They know how to design clinical trials here,
and they know ophthalmics not only clinically
but from the sales and marketing side. They
were hands down the best partner we can
possibly find here.
Mack said he is confident that Pfizer will push the
product along with all due speed.
First, we argue that a venture can utilize corporate
laboratories and research facilities (Acs et al., 1997;
Strat. Mgmt. J., 37: 819–834 (2016)
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 Comparing Biotech Ventures Backed by Corporate and Independent VCs
Zucker et al., 1998). These resources can be used
to help develop and test promising new inventions
(Scotchmer, 2004). The benefits are not limited to
the use of the physical infrastructure. They have
also to do with constant interactions with industry
experts and R&D personnel. It follows that corpo-
rate venture capitalists can leverage corporate com-
plementary assets during the discovery stage. The
preferential access can stimulate ventures’ clinical
research and scientific publications. In comparison,
VC-backed ventures are privy to business advice,
yet do not experience the same level of scientific
conversations.
Indeed, this observation is echoed by an invest-
ment principle at Merck’s Global Health Innovation
Fund: “For the entrepreneur, going through the cor-
porate venturing unit brings access to Merck’s prod-
uct line and research and development … ” (Global
Corporate Venturing, March 2012). These advan-
tages are also acknowledged by corporate-backed
ventures. A quote from Kevin FitzGerland, CEO of
F-Star, a biotechnology venture backed by Merck
Global Health Innovation fund, illustrates the point:
“Our relationships with Merck Serono have given us
the opportunity to meet with senior representatives
from relevant research areas with the pharma orga-
nization” (Global Corporate Venturing, June 2010).
Second, corporate backing also enables ventures
to build on a corporation’s knowledge of regula-
tory procedures and management of clinical trials
(Pisano, 2006). To understand the value of CVC
support, note that even ventures with a track record
of successful scientific discovery could face major
challenges in profiting from their inventions. Many
scientific publications do not create therapeutic
value to begin with; at least 50 percent of published
studies can’t be repeated with the same conclusions
by an industrial lab (Osherovich, 2011). And reg-
ulatory approval constitutes an equally high hur-
dle; 90 percent of compounds entering clinical trials
fail to make it to the market. Only 30 percent of
the drugs that make it to market generate sufficient
returns to cover their cost of capital (Giovannetti
and Morrison, 2000).
Corporate backing aids in navigating these
challenges. Specifically, corporate-backed ventures
experience reduced costs and speedier time to
market. Moreover, access to large manufacturing
and national sales capabilities implies a venture’s
innovative drug can be sold in large quantities
(Gans and Stern, 2003). Anecdotally, Steve Tregay
of Novartis Venture Funds indicates such benefits
Copyright © 2014 John Wiley & Sons, Ltd.
823
await corporate-backed ventures: “You can help
develop your technology platform at a lower
cost because you are offsetting some of the costs
through collaboration” (Ernst & Young, Global
Corporate Venture Capital Report, 2009).
In summary, access to resource endowments
along the industry value chain is critical to research
and commercial success of biotechnology ventures.
Large corporations possess such complementary
asset endowments, which otherwise require signif-
icant capital and time investment. Consider, for
example, the market for rheumatoid arthritis drugs
(Hill and Jones, 2007), where Immunex, a biotech
venture, lost out to latecomer corporation Johnson
& Johnson. The first drug in this space, Enbrel,
was introduced by Immunex in 1998, and its sales
grew to $750 M within three years. Yet, by the time
Enbrel was approved for sale in the United States,
Immunex did not have the capacity and large-scale
manufacturing capabilities to satisfy the surging
demand. In the meantime, a subsidiary of Johnson
& Johnson developed its own offering, Remicade.
In 2002, Immunex saw its revenues overshadowed
by Johnson & Johnson sales in this space.
Building on these insights, we argue that, if
corporate-backed ventures experience access to
complementary assets to an extent greater than
VC-backed ventures do, the former are likely to
experience greater innovation outcomes.
Hypothesis 1: In comparison to VC-backed ven-
tures, the innovation outcomes of CVC-backed
ventures are higher.
Unpacking the contribution of investors’
complementary assets: investigating
mechanisms along the pharmaceutical value
chain
We proceed to explore the mechanisms by which
investors’ complementary assets shape ventures’
innovative outcomes. Our approach pivots on the
observation that large corporations possess a collec-
tion of complementary assets, and that each asset
is effective for a specific stage of the industry
value chain. We identify two factors that influence
the impact of complementary assets of corporate
investors compared to independent VCs: (1) geo-
graphic distance lowers accessibility to laboratories
during the discovery stage, and (2) FDA regulatory
requirements enhance the applicability of legal and
clinical know-how as well as manufacturing and
Strat. Mgmt. J., 37: 819–834 (2016)
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824 E. Alvarez-Garrido and G. Dushnitsky
sales during the development and commercializa-
tion stages. These factors, we hypothesize, affect the
magnitude of contribution that corporate investors
(through their complementary assets) have in com-
parison to independent VCs.
To motivate our hypotheses development, we
build on the three stages of the pharmaceutical
industry: discovery, development, and commercial-
ization (Northrup et al., 2012). The discovery stage
is where new scientific knowledge lays the foun-
dation for a new drug. The process starts when
a new target (e.g., a molecule associated with
a specific disease) is identified and appropriate
leads are generated that show therapeutic potential.
This stage usually involves highly skilled scientists
and requires state-of-the-art laboratories and costly
R&D infrastructure.
Development is the next stage and consists of
preclinical and clinical tests. If successful, the new
scientific knowledge is of substantial commercial
value. The focus shifts to corroborating the ther-
apeutic potential of the prospective drug, substan-
tiating its efficacy as well as certifying its safety
according to strict regulatory requirements. The
multi-phase multi-year testing process it entails
requires experience with regulatory bodies (e.g., the
FDA in the United States).
The commercialization stage covers the manu-
facturing and sales of the drug once it has been
approved. The challenge is twofold. First, one has to
produce large volumes of the drug while minimiz-
ing costs and maintaining stringent quality hurdles.
It calls for large-scale plants and manufacturing
infrastructure that are often distributed around the
globe to benefit from access to raw materials, labor,
and favorable tax regimes. Second, the new drug
has to be marketed to thousands of medical doc-
tors or dozens of hospitals and health maintenance
organizations (HMOs). This calls for a specialized
sales force with deep understanding and relation-
ships with medical doctors and institutions.
Discovery stage and the moderating role
of geographic proximity
The distance between independent venture capital
firms and the entrepreneurial ventures they funded
has been studied in the past. Extant work reports
that proximity enables close interaction and soft
information flows necessary for effective scout-
ing and due diligence, as well as post-investment
operational assistance and other nurturing activities
Copyright © 2014 John Wiley & Sons, Ltd.
(Sorenson and Stuart, 2001). However, the litera-
ture offers little guidance as to the effect of distance
on other investor types. Specifically, it is not clear
whether proximity impacts the ability to leverage
corporate complementary assets.
During the discovery stage, access to corporate
R&D personnel and laboratories plays an important
role. Key to our conjecture is that these complemen-
tary assets are unique to corporate venture capital
investors. Put differently, proximity to an indepen-
dent VC would not afford access to cutting-edge
R&D equipment or personnel because VCs do not
possess such assets to begin with.
The closer a venture is to corporate R&D facil-
ities, the greater its opportunity to benefit from
it. Modern research demands sophisticated equip-
ment that is either expensive, scarce, or both, and
proximity to corporate R&D facilities facilitates
access to corporate labs. Equally important is access
to R&D personnel. The literature reports that the
progression of innovative work has a strong local
nature (Jaffe et al., 1993). As research is ambigu-
ous and has to do with the novel recombination of
ideas (Agrawal et al., 2006; Fleming et al., 2007), it
requires frequent interpersonal interactions that are
facilitated by geographic proximity. Catalini (2013)
finds that the likelihood of a breakthrough is higher
for researchers that are close to each other.
Anecdotal evidence demonstrates the aforemen-
tioned discussion. For example, SR One, GSK’s
venture unit, offers portfolio companies access to
scientific experts within GSK; it works with GSK’s
Scinovo unit to provide direct access to its sci-
entists who assist the ventures with development
plan strategies, experimental design, data interpre-
tation, and problem solving.2 The opportunity to
leverage corporate scientific resources is similarly
echoed by Pfizer-backed Eyetech Pharmaceuticals:
Guyer (Eyetech CEO) said, “The choice came down
to Pfizer. Just a ‘five-minute walk’ from Eyetech’s
offices in New York.” A similar anecdote is illus-
trated by Ron Cohen, M.D., President and CEO
of Acorda Therapeutics,3 which was funded by the
pharmaceutical Elan:
2 Based on author’s personal communication with SR One partner
and interview with a Scinovo partner. Also see Scinovo webpage
(http://www.scinovogsk.com).
3
Wireless News, January 29, 2010, “Elan Drug Technologies
Comments on the NDA Approval of MS Drug Ampyra Extended
Release Tablets.”
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 Comparing Biotech Ventures Backed by Corporate and Independent VCs
We are very proud to announce the approval
of Ampyra and we thank Elan for their
collaboration throughout the development
program for this drug. Elan’s expertise in
formulation development, which resulted in
this extended-release tablet, was a critical
component of the Ampyra clinical program.
It follows that a venture has a potential to benefit
from corporate complementary assets. The more
geographically proximate the two are, the greater
the ability to realize that potential. In contrast, a
CVC-backed venture that is distant from its funding
firm experiences limited or no access to corporate
labs and R&D personnel. Hence, it faces an investor
whose complementary asset profile is not much
different from that of an independent VC. We
therefore conjecture:
Hypothesis 2: In comparison to VC-backed ven-
tures, the innovation outcomes of CVC-backed
ventures are higher, and this positive gap is sensi-
tive to accessibility to its corporate investor: the
gap is high (low) when ventures are based (are
not based) in the same region as its corporate
investor.
Development and commercialization stages
and the moderating role of regulatory approval
We proceed to consider the effect of complementary
assets in later stages. A critical hurdle to innova-
tion, once scientific viability has been established,
is oversight by the FDA, which is necessary to sell
new prescription or non-prescription drugs in the
United States. The progression to drug approval
begins before FDA involvement, when a prototype
drug is identified and as scientists start working
with animals to test its efficacy. An innovative ven-
ture has to initiate an investigational new drug and
receive FDA consent to conduct tests with human
subjects. Those tests, called clinical trials, are car-
ried out sequentially in Phase I, II, and III stud-
ies, which involve increasing numbers of subjects.
To win FDA approval, one has to demonstrate (1)
safety and effectiveness in the drug’s proposed use,
(2) adequacy of manufacturing methods to assure
the drug’s strength and quality, and (3) appropriate-
ness of the proposed labeling. Once a drug is on the
market, the FDA continues to regulate its use.
Few novel components pass the regulatory pro-
cess. In part, the challenge has to do with the
underlying science; a recent study puts Phase
Copyright © 2014 John Wiley & Sons, Ltd.
825
III approval rate below 15 percent (Czerepak and
Ryser, 2008). In part, the challenge is also due to
the administrative and regulatory demands, such as
the necessity to demonstrate adequacy of manu-
facturing methods. The FDA hurdle is particularly
challenging for VC-backed ventures. Indeed, inde-
pendent VCs cite the complex FDA approval pro-
cess as their most common concern (NVCA, 2011);
respondents to a National Venture Capital Asso-
ciation (NVCA) survey rank FDA approval as a
leading concern by 61 percent of the survey respon-
dents; almost double the magnitude of the second
highest concern (i.e., HMO reimbursement con-
cerns; 38% of respondents). The challenge expe-
rienced by VC-backed ventures during the devel-
opment stage resulted in an open letter from the
venture capital community to the head of the FDA
administration, stating, “While all companies face
these factors to a certain extent, the challenges are
exacerbated for small venture-backed companies”
(NVCA, 2010).
In contrast, corporate complementary assets,
specifically, legal personnel and regulatory
know-how, are instrumental at that stage. Recent
evidence finds biotech firms that are backed
by a large pharmaceutical had fewer clinical
failures (Czerepak and Ryser, 2008). It fol-
lows that CVC-backed ventures with access to
FDA-approved corporate manufacturing facilities
are able to meet FDA demands. And specialized
sales force can also speed the time horizons and
expand the reach of successful applications. Case in
point is the Pfizer-funded Eyetech Pharmaceuticals.
Guyer (Eyetech’s CEO) said:
While we felt we could build a U.S. sales force,
because there are only 1,400 retinal special-
ists in the U.S. that treat AMD [age-related
macular degeneration], we were concerned
that we were too young of a company to have
the ex-U.S. commercialization [capability].
Terms of the relationship between Eyetech and
Pfizer call for the companies to co-promote
the product in the U.S., with the former field-
ing about 60 employees as sales representa-
tives and reimbursement consultants for reti-
nal specialists. Pfizer will send out a sales
team of about 160 people to ophthalmologists
and optometrists.
Access to such corporate complementary assets
increases the commercial prospects of ventures’
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826 E. Alvarez-Garrido and G. Dushnitsky
drugs, and induces it to undertake costly innovation
effort. Since independent VCs lack such comple-
mentary assets, we expect to observe a gap between
independent and corporate-backed ventures’ com-
mercial innovation output.
Hypothesis 3: In comparison to VC-backed ven-
tures, the patenting outcomes of CVC-backed
ventures are higher, and this positive gap is sen-
sitive to the applicability of corporate FDA reg-
ulatory know-how: the gap is high (low) when
ventures are subjected (are not subjected) to FDA
approval.
METHODOLOGY
Empirical setting and sample description
Our sample consists of 545 U.S. biotechnology
ventures founded between 1990 and 2003, and
observed through 2011.4,5 Biotechnology is ideal,
since key developments in the industry are strongly
rooted in advancement in science, yet also require
additional progress through applied research, and
as a result patents and publications are intertwined
(e.g., Gittelman and Kogut, 2003; Huang and Mur-
ray, 2009; Lim, 2004). Entrepreneurial ventures
are a major source of innovation in this setting
(Rothaermel and Thursby, 2007; Stuart et al., 1999;
Zucker et al., 2002). We focus on ventures backed
by two prominent investor types: independent and
corporate venture capitalists. Our sample includes
VC-backed ventures only, 34 percent of which are
also CVC backed. It allows us to analyze the
marginal effect of CVC backing relative to only VC
backing.
We collect full investment information from
Venture Economics, a comprehensive database
on venture investments that is widely used in
previous research (Dushnitsky and Lenox, 2005a,b;
Gompers, 1995; Guler and Guillén, 2010; Sorenson
4 erature, which leverages the local availability of
The original sample consists of 572 ventures; including all
VC-funded ventures in biotechnology as coded by experts in the
field. We restrict the sample to those that are still in the sample
two years after founding. Due to this, and some missing variables,
the final sample is 545. There are no significant differences
between the two samples.
5 Patents and publications are collected through 2011; we included
ventures founded up to 2003, and all their patents and publications
filed through 2005 (recognizing that due to the patent lag many
become observable only in 2011). Note that in our sample the
application grant lag stands at a mean of four years, with a
standard error of two years.
Copyright © 2014 John Wiley & Sons, Ltd.
and Stuart, 2001). Patent data were collected from
the United States Patent and Trademark Office
(USPTO), and patent assignee information was
hand-matched to biotechnology ventures in the
sample. Publications were collected from the
Web of Knowledge (ISI) database, widely used in
prior work (Azoulay et al., 2009; Cockburn and
Henderson, 1998; Gittelman and Kogut, 2003;
Goldfarb, 2008).
Empirical strategy
We investigate venture’s innovation outcomes as
a function of investor type. We recognize that
investors select which ventures to invest in. Accord-
ingly, our empirical strategy accounts for selection
and nurturing effects.
We use Patentsi,t and Publicationsi,t as depen-
dent variables. They take only integer, nonnegative
values. Accordingly, we account for selection
and nurturing effects of CVCs by estimating a
nonlinear structural model, which incorporates the
residuals of the first stage as an additional regressor
in the second stage, using bootstrap to correct the
standard error (Cameron & Trivedi, 2009; Mullahy,
1997; Terza, 1998; Terza et al., 2008; Wooldridge,
1997, 2002).
The model estimates two moments in a venture’s
life: (1) the first stage estimates the probability of a
CVC selecting a venture at the time of initial invest-
ment, (2) the second stage estimates the number of
annual patents and publications at the end of the
window of observation. All else being equal, this
allows us to compare the yearly innovative outputs
of ventures that are CVC backed with those that are
only VC backed.
The first stage estimates the likelihood of CVC
investment, following Dushnitsky and Shaver
(2009) and including attributes of both venture
and investor, at the time of investment (and thus
not affected by post-investment investors’ effect).
The choice of instrument draws from recent lit-
the selected characteristic—the supply of CVC
backing in our context.6 This approach has been
6 The intuition for the instrument is as follows. Consider two
different times, one where there were many CVCs investing and
another where there were few. It is more likely that a given
entrepreneurial venture will be CVC backed if there are more
CVCs investing at that point in time. Besides predictive power,
this instrument meets the exclusion restriction. While the actual
matching of CVCs and ventures may be endogenous, the local
Strat. Mgmt. J., 37: 819–834 (2016)
DOI: 10.1002/smj
 Comparing Biotech Ventures Backed by Corporate and Independent VCs
used by Bottazzi, Da Rin, and Hellmann (2008),
Samila and Sorenson (2010, 2011), and closely
mirrors the analysis of Berger et al. (2005).
Dependent variables
We study both patent and publication outcomes.
This affords a holistic understanding of the impact
on the innovativeness of biotechnology ventures.
To see why, recall that not all types of innovative
outcomes are similar. Academic publications are
often associated with scientific, or basic, research,
whereas patents are often associated with applied,
or commercially orientated, research. Accordingly,
a large body of literature has explored the patent-
ing and publication choices of innovative organiza-
tions (Furman et al., 2010; Griliches, 1990, 1994;
Levin et al., 1987; Sauermann and Stephan, 2013;
Stern, 2004). However, the biotechnology indus-
try is the archetype of the dual nature of innova-
tion, an industry within Pasteur’s quadrant (Stokes,
1997), where science and technology are highly
intertwined. Consider the first biotechnology drug,
a human insulin drug that was produced utilizing
the innovative recombinant-DNA technology. Pro-
fessors Stanley Cohen and Herbert Boyer published
the underlying scientific work in 1973, and the fol-
lowing year applied for a patent that was ultimately
awarded in 1980. Evidence of this duality is clearly
observed in patent-publication pairs (Huang and
Murray, 2009; Murray and Stern, 2007), and is typ-
ical of life sciences firms (Gittelman and Kogut,
2003; Lim, 2004).
We measure Patentsi,t as a count of patents for
venture i at year t. It measures a venture’s patenting
output in line with extant work (e.g., Ahuja and
Katila, 2001; Cockburn et al., 1999). Publicationsi,t
is a count of scientific publications for venture i at
year t. It measures a venture’s publications output
(e.g., Agrawal and Henderson, 2002; Azoulay et al.,
2009).
Independent variables
CVCi,t−1 is a binary variable. It is equal to 1 once a
CVC invests in the venture, and 0 otherwise (i.e., a
venture is funded solely by VCs).
availability of CVCs is exogenous. Furthermore, once a venture is
matched with its investor, the local availability of CVCs becomes
irrelevant, since all that matters is the matching (or not) to a CVC.
Copyright © 2014 John Wiley & Sons, Ltd.
827
CVC Accessibility High or Lowi,t−1 decompose
CVCi,t−1 into two nested binary variables, based on
the distance to the venture. If a venture is funded
by a CVC that is based in the same (in a different)
region, then Highi,t−1 (Lowi,t−1 ) is equal to 1. We
follow the U.S. Small Business Administration
regional classification.
FDA Approval Applicablei describes the venture,
irrespective of whether it is VC or CVC backed.
Specifically, it is an indicator variable that takes
the value of 1 when the venture operates in a
sub-industry that is subject to the FDA regulatory
process, and 0 otherwise. We matched the Ventur-
eXpert Industry Classification (VEIC) description
of the sub-industry, from Venture Economics, to the
categories subject to FDA approval, according to
FDA regulation.
To address the possibility that CVCs invest in
ventures with larger investment needs, we control
for a venture’s Cumulative Investment Amounti,t−1 ,
namely, the dollar amount invested up to year t − 1
(e.g., Aggarwal and Hsu, 2009; Guler, 2007; Hsu,
2006). Venture Agei,t−1 measures the number of
years since the venture was founded (e.g., Aggarwal
and Hsu, 2009; Hsu, 2007; Hsu and Ziedonis,
2013). This variable is a proxy for the growth of
the venture. Multiple CVCi,t−1 takes the value of 1
when there is more than one CVC in the investment
syndicate. In addition, we control for differences in
the Length of Investment (years) of the CVC or VC,
respectively, at the time the window of observation
closes. All models include year fixed effects.
The first stage employs the instrument CVC
Annual Availabilityt , which measures the number
of biotechnology ventures that received CVC fund-
ing that year. We follow Dushnitsky and Shaver’s
(2009) model to predict the likelihood of CVC back-
ing. The specification further includes Patentsi,t
and Publicationsi,t at the time of investment, and
Investor Biotech Experiencei,t , namely, the number
of biotechnology companies in investor’s portfolio
divided by the total number of investor’s portfolio
companies.
RESULTS
Table 2 reports descriptive statistics and pairwise
correlations. The sample consists of 545 ventures
of which 185 (34%) are backed by a CVC. As for
innovation output, ventures file an average (median)
of 1.7 (0) patents and 4 (1) publications annually.
Strat. Mgmt. J., 37: 819–834 (2016)
DOI: 10.1002/smj
828 E. Alvarez-Garrido and G. Dushnitsky
Table 2. Descriptive statistics and correlations

Panel A

Variable Average S.E. Min Med Max

1. Patentsi,t 1.68 3.96 0 0 41

2. Publicationsi,t 3.97 9.15 0 1 141
3. CVCi,t-1 0.34 0.47 0 0 1
4. CVC_accessibility_highi,t-1 0.12 0.33 0 0 1
5. CVC_accessibility_lowi,t-1 0.19 0.39 0 0 1
6. Multiple_CVCi,t-1 0.09 0.28 0 0 1
7. Cumulative_investment_amounti,t-1 8.67 12.23 0.01 4.25 125.7
8. FDA_approval_applicablei 0.74 0.44 0 1 1
9. Venture_agei,t-1 6.22 3.39 1 6 14
10. Venture_qualityi 0.40 0.49 0 0 1
11. Geographical_distancei,t-1 8.15 5.01 5 5 20
12. Investor_biotech_experiencei,t-1 0.44 0.30 0 0.48 1
13. Length_of_investmenti,t-1 5.97 3.18 2 5 16
14. CVC_annual availabilityt-1 4.58 0.38 1.61 4.68 4.7

Panel B

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13.

1.
2. 0.48
3. 0.17 0.19
4. 0.10 0.16 0.53
5. 0.14 0.10 0.67 −0.18
6. 0.17 0.21 0.43 0.37 0.20
7. 0.25 0.22 0.32 0.13 0.30 0.14
8. 0.05 0.15 0.05 −0.01 0.04 0.06 0.06
9. 0.11 0.24 0.04 −0.06 0.15 0.00 0.30 0.05
10. 0.23 0.32 0.10 0.06 0.12 0.04 0.27 0.10 0.19
11. 0.20 0.10 0.42 −0.15 0.57 0.21 0.16 0.07 0.14 0.06
12. 0.11 0.12 0.40 0.28 0.21 0.29 0.30 0.11 0.01 0.15 0.15
13. 0.09 0.24 −0.12 −0.06 0.01 −0.06 0.27 0.06 0.74 0.19 0.02 −0.02
14. 0.01 −0.02 0.01 −0.03 0.03 0.04 0.10 −0.01 0.20 −0.30 0.06 0.11 0.16

N = 545 ventures at the end of the period of observation.

Correlations 0.07 or greater are significant at 5%.

Patents and Publications are positively correlated at
48 percent, which is consistent with the dual nature
of innovation in biotech (Gittelman and Kogut,
2003; Huang and Murray, 2009; Lim, 2004; Mur-
ray and Stern, 2007). Both Patents and Publica-
tions correlate at 17 and 19 percent with CVC,
respectively.
Table 3 reports the first-stage regression, estimat-
ing the likelihood of being CVC backed. The instru-
ment, CVC Annual Availability, is positive and
significant; a highly significant likelihood ratio test
shows it is also strong.
Table 4 reports second-stage analysis for our first
proxy for ventures’ innovative outcomes, Patents.
Copyright © 2014 John Wiley & Sons, Ltd.
The coefficient for the First-Stage Residuals is
significant throughout models. Controlling for this
effect, any remaining association between ven-
tures’ output and investor type is likely due to the
investor’s unique nurturing effect. On Model 4.1,
the CVCi,t−1 coefficient is positive and significant,
implying that CVC-backed ventures are associated
with greater patent output compared to those that
are solely VC backed. Consistent with Hypothe-
sis 1, this suggests that CVCs provide the ventures
with access to complementary assets that foster
their innovative processes relative to VCs.
Model 4.2 decomposes CVCs into those that
are highly accessible to the venture and those
Strat. Mgmt. J., 37: 819–834 (2016)
DOI: 10.1002/smj
 Comparing Biotech Ventures Backed by Corporate and Independent VCs 829
Table 3. Nonlinear structural model—first stage: probit Table 5 turns to analyzing the second proxy
regression of CVC investment of innovative outcomes, ventures’ Publications.
Model 5.1 finds additional support for the main
D.V. CVCi,t 3.1
effect of CVC backing on Publications, com-
CVC_annual availabilityt 0.87* pared to solely VC-backed ventures, in support of
(0.43) Hypothesis 1. Hypothesis 2 is supported for publi-
Investor_biotech_experiencei,t 1.67*** cations, as shown by Model 5.2. We find that the
(0.27) gap in publication outcomes between CVC-backed
Cumulative_investment_amounti,t 0.32*** ventures and solely VC-backed ventures is sensi-
(0.05)
tive to the co-location with the corporate investor.
Geographic_distancei,t 0.09***
(0.02) The gap is high for CVCs that are highly acces-
Venture_agei,t −0.02 sible but diminishes for those funded by CVCs
(0.04) that are inaccessible. It suggests that access to
Venture_qualityi −0.04 corporate R&D infrastructure during the discov-
(0.16) ery stage is an important avenue by which CVCs
FDA_approval_applicablei −0.07
(0.16) foster venture’s innovations. Model 5.3 tests the
Constant −6.44** effect of CVCs’ regulatory know-how and finds
(2.02) results consistent with those in Model 4.3. Model
Year fixed effects Yes 5.4 estimates the full model and echoes Model
N (ventures) 545 4.4, providing additional support for Hypotheses
Pseudo R2 0.43
2 and 3.
At time of investment by the CVC (if CVC backed) or VC
To summarize, the results provide evidence
(otherwise). Robust standard errors appear in parentheses. that CVC backing is associated with both patent
***p < 0.001; **p < 0.01; *p < 0.05. and publication outcomes of entrepreneurial
ventures, above and beyond the effect of VC
that are not. We find that the gap in patenting funding. The effect of CVCs on both innovative
outcomes between CVC-backed ventures and outcomes is of substantial economic magnitude.
solely VC-backed ventures is not sensitive to the Compared to ventures that are solely VC-backed,
co-location with the corporate investor, which is CVC-backed ventures have 2.80 more Patents per
not consistent with Hypothesis 2. year and 2.05 more Publications per year than
Model 4.3 analyzes another dimension affecting solely VC-backed ventures (Models 6.1 and 7.1,
the contribution of corporate complementary respectively). In other words, the effect of CVC
assets, namely, the applicability of the corporate backing is associated with more than double the
regulatory know-how. The coefficient on CVCi,t−1 × innovative outcomes of ventures that are solely
FDA_Approval_Applicablei is positive and statisti- VC backed.
cally significant, and the coefficient on CVCi,t−1 × Results were robust to alternative models to
FDA_Approval_Not_Applicablei is statistically account for endogeneity, such as Poisson quasi-
insignificant. Jointly, they support Hypothe- maximum likelihood fixed-effects estimation, or
sis 3: CVC-backed ventures patent more than a linear 2SLS approximation. We also consid-
their VC-backed peers, when FDA approval is ered whether experienced VCs may be altering the
applicable. dynamics between the venture and the CVC, but
Finally, we test the two characteristics simulta- results were robust in the subsample of ventures
neously in Model 4.4. We break down the effect that are funded by VCs with high experience in the
of CVC into four exclusive types: high or low geo- industry. The results were also robust when con-
graphic accessibility, and high or low applicability trolling for the number of investors in the syndi-
of FDA approval, where the benchmark is being VC cate, hence being less likely that as the number of
backed. In line with our hypotheses, we find that investors increases, the incentives to share the com-
the gap in patent outcomes between CVC-backed plementary assets decrease.7
ventures and solely VC-backed ventures diminishes
for ventures that are not subjected to FDA approval,
but this effect dominates the effect of the corporate 7
Results available upon request. We thank two anonymous
investor being based in the same region. reviewers for their thoughtful suggestions.

Copyright © 2014 John Wiley & Sons, Ltd. Strat. Mgmt. J., 37: 819–834 (2016)
DOI: 10.1002/smj
830 E. Alvarez-Garrido and G. Dushnitsky
Table 4. Non-linear structural model—second stage: negative binomial regression of venture’s patents

D.V. patentsi,t 4.1 4.2 4.3 4.4

CVCi,t-1 1.03*
(0.46)
CVC_accessibility_highi,t-1 1.38**
(0.50)
CVC_accessibility_lowi,t-1 1.12**
(0.42)
CVCi,t-1 × FDA_approval_applicablei 1.11*
(0.50)
CVCi,t-1 × FDA_approval_not_applicablei 0.81
(0.56)
CVC_accessibility_highi,t-1 × FDA_approval_applicablei 1.45**
(0.55)
CVC_accessibility_highi,t-1 × FDA_approval_not_applicablei 1.21
(0.72)
CVC_accessibility_lowi,t-1 × FDA_approval_applicablei 1.21*
(0.48)
CVC_accessibility_lowi,t-1 × FDA_approval_not_applicablei 0.84
(0.68)
Multiple CVCi,t-1 0.64* 0.51 0.62 0.49
(0.31) (0.31) (0.32) (0.32)
Cumulative_investment_amounti,t-1 0.03* 0.03* 0.03* 0.03*
(0.01) (0.01) (0.01) (0.01)
FDA_approval_applicablei −0.07 −0.04 −0.17 −0.13
(0.21) (0.22) (0.27) (0.26)
Venture_agei,t-1 0.02 0.02 0.01 0.02
(0.05) (0.05) (0.05) (0.05)
Length of investmenti,t-1 0.05 0.04 0.05 0.04
(0.06) (0.06) (0.06) (0.06)
Constant −0.81* −0.83** −0.74* −0.76*
(0.33) (0.31) (0.34) (0.33)
First-stage residualsi a −0.41* −0.47** −0.40* −0.47**
(0.19) (0.17) (0.19) (0.17)
Year fixed effects Yes Yes Yes Yes
N (ventures) 545 545 545 545
Log-likelihood −815 −813 −815 −812
Test of overdispersion 1.06*** 1.04*** 1.06*** 1.04***

aFirst-stage residuals: robust standard errors are reported.

***p < 0.001; **p < 0.01; *p < 0.05.
Bootstrap standard errors appear in parentheses. Coefficients are reported.

DISCUSSION AND CONCLUSION and the innovation outcomes of CVC-backed ven-

Analysis of 545 U.S.-based biotechnology ven-
tures uncovers subtle innovation implications. We
find that ventures’ innovation output is sensitive to
investor type: CVC-backed ventures are associated
with greater publication and patenting output com-
pared to peers backed solely by VCs. Moreover,
the performance of CVC-backed ventures is sensi-
tive to their ability to benefit from corporate com-
plementary assets; ventures that are not subjected
to FDA approval experience innovation outcomes
that are not different from solely VC-backed peers,
Copyright © 2014 John Wiley & Sons, Ltd.
tures that are neither subjected to FDA approval nor
proximate to the investing corporation are similar to
VC-backed peers.
As with any study, we face the challenge of sep-
arating selection and nurturing effects. The empir-
ical challenge lies in the fact that entrepreneurial
ventures and investors (either independent or cor-
porate VCs) match with each other. Indeed, our
results support the idea that the latter selects more
innovative ventures than the former. Importantly,
we find that there is an investor type effect that
goes beyond selection. Our analyses consistently
Strat. Mgmt. J., 37: 819–834 (2016)
DOI: 10.1002/smj
 Comparing Biotech Ventures Backed by Corporate and Independent VCs 831
Table 5. Non-linear structural model—second stage: negative binomial regression of venture’s publications

D.V. publicationsi,t 5.1 5.2 5.3 5.4

CVCi,t-1 0.72*
(0.31)
CVC_accessibility_highi,t-1 1.02**
(0.36)
CVC_accessibility_lowi,t-1 0.49
(0.29)
CVCi,t-1 × FDA_approval_applicablei 0.84**
(0.31)
CVCi,t-1 × FDA_approval_not_applicablei 0.44
(0.48)
CVC_accessibility_highi,t-1 × FDA_approval_applicablei 1.14**
(0.38)
CVC_accessibility_highi,t-1 × FDA_approval_not_applicablei 0.84
(0.62)
CVC_accessibility_lowi,t-1 × FDA_approval_applicablei 0.62*
(0.31)
CVC_accessibility_lowi,t-1 × FDA_approval_not_applicablei 0.08
(0.50)
Multiple CVCi,t-1 0.41 0.40 0.35 0.36
(0.33) (0.31) (0.33) (0.31)
Cumulative_investment_amounti,t-1 0.03** 0.03** 0.03** 0.03**
(0.01) (0.01) (0.01) (0.01)
FDA_approval_applicablei 0.65*** 0.70*** 0.52* 0.57*
(0.19) (0.19) (0.25) (0.25)
Venture_agei,t-1 0.08* 0.09* 0.07 0.09*
(0.04) (0.03) (0.04) (0.04)
Length of investmenti,t-1 0.07 0.05 0.07 0.05
(0.05) (0.04) (0.05) (0.04)
Constant −0.95** −0.94*** −0.87** −0.85**
(0.31) (0.28) (0.33) (0.31)
First-stage residualsi a −0.15 −0.17 −0.15 −0.19
(0.14) (0.13) (0.14) (0.13)
Year fixed effects Yes Yes Yes Yes
N (ventures) 545 545 545 545
Log-likelihood −1,160 −1,158 −1,159 −1,157
Test of overdispersion 0.82*** 0.81*** 0.82*** 0.81***

a
First-stage residuals: robust standard errors are reported.
***p < 0.001; **p < 0.01; *p < 0.05.
Bootstrap standard errors appear in parentheses. Coefficients are reported.

show an increase in ventures’ innovation during the
period they are nurtured by a CVC (i.e., post-CVC
investment.) Moreover, our analysis points to the
mechanisms by which this takes place.
The paper makes several contributions. As dis-
cussed in the Introduction, our findings inform an
ongoing debate in the strategy literature. Rather
than contrasting the innovation propensity of estab-
lished firms and that of entrepreneurial ventures,
we underscore heterogeneity among the latter group
in terms of the investors that back them. Our find-
ings illustrate that corporate investors are associ-
ated with distinct innovation outcomes to the funded
Copyright © 2014 John Wiley & Sons, Ltd.
ventures, particularly when corporate complemen-
tary assets are accessible or applicable. In so doing,
we call for a nuanced understanding of innova-
tion propensity in our economy, one that is based
not on a contradiction between established firms
and entrepreneurial ventures but rather on a subtle
interplay between the two groups.
Another contribution has to do with the use of
multiple innovation outcomes. This approach, we
believe, generates robust findings especially when
studying the implications of different investors.
To date, the entrepreneurship literature focused on
ventures’ patenting output. For example, Kortum
Strat. Mgmt. J., 37: 819–834 (2016)
DOI: 10.1002/smj
832 E. Alvarez-Garrido and G. Dushnitsky
and Lerner (2000) show that VCs have spurred
patenting in the United States, and Samila and
Sorenson (2010) find VCs increase the effect of
knowledge spillovers from universities on the rates
of ventures’ patenting. These studies focused on
ventures’ patenting, largely because independent
VCs (the traditional investors in ventures) have
focused on an innovation metric that has immediate
commercial value (Heeley et al., 2007; Hsu and
Ziedonis, 2013). We provide further confidence
in the hypothesized nurturing effect, by studying
the effect of CVC backing not only on ventures’
patenting but also on publication outcomes.8
We also join the budding conversation in the
entrepreneurial finance literature around the iden-
tity and consequences of different investor types.
The previous decade has seen great emphasis on
independent VCs (e.g., Fitza et al., 2009; Gom-
pers, 1995; Guler and Guillén, 2010; Lerner, 1994;
Sapienza, 1992), mainly due to their prominence in
investment amount and media attention. In parallel,
smaller streams of work focused on angel investors
and CVCs (Benson and Ziedonis, 2009; Dushnitsky
and Lenox, 2005a; Dushnitsky and Shapira, 2010;
Wadhwa and Kotha, 2006). Along with Cox, Katila,
and Eisenhardt (2013) and others, we are the first
to incorporate a number of different investor types
and, importantly, explicitly compare them.
More research is needed to clarify some of these
issues. Our data does not allow us to identify all the
mechanisms that underlie the CVC effect. By focus-
ing on innovation outputs that are associated with
and without legal rights (patents and publications,
respectively), we highlight the role of corporate
venture capital in stimulating ventures’ innova-
tion. Future research could delve into the issue of
possible market overlap, and seek to discriminate
between the potential for rapid commercialization
benefits versus self-interested expropriation con-
cerns. Our research is also limited by the analysis
of a single industry: biotechnology. The industry is
the subject of volumes of research and is uniquely
appropriate to our study given the prevalence of
biotech ventures and the diversity in their investor
pool. It does raise the question, however, of gener-
alizability, specifically as this industry falls within
8 If we were to study a single innovation proxy—patents, for
example—our results may be biased to the extent that each
investor has an idiosyncratic preference to a particular innovation
proxy (i.e., VCs seek to stimulate patents, while CVCs benefit
from scientific publication). Because we explore both innovation
proxies, such bias is unlikely.
Copyright © 2014 John Wiley & Sons, Ltd.
Pasteur’s quadrant, where patents and publications
are highly intertwined; yet, this may not be the case
in other high tech industries. Finally, our research
has focused on the heterogenous assets that CVCs
and VCs provide. However, previous research has
pointed out that not all VCs are alike (Kaplan and
Schoar, 2005). Further research should explore how
the gap of CVCs to VCs might differ depending, for
example, on VC reputation or experience or even
across different CVCs.
ACKNOWLEDGEMENTS
Funding from the Mack Institute for Innovation
Management at the Wharton School is greatly
appreciated. The authors would like to thank the
editor, Professor Bettis, and the reviewers for their
thoughtful comments, as well as Jeff Furman, Brent
Goldfarb, Isin Guler, Dan Levinthal, and Mike
Roach for detailed feedback. We also appreciate
useful comments from conference participants at
the 2011 Strategic Management Society (SMS),
2012 LBS VIP Seminar, 2012 Wharton Mack Insti-
tute Conference, 2012 Danish Research Unit for
Industrial Dynamics (DRUID) Aalborg, and 2012
Academy of Management (AOM).
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