استفاده استراتژیک از تامین مالی سرمایه گذاری شرکت های بزرگ برای تامین امنیت تقاضا
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|12981||2006||25 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Banking & Finance, Volume 30, Issue 10, October 2006, Pages 2809–2833
This paper focuses on the strategic role of corporate venture financing carried out by a corporation (a headquarter). When the headquarter finances a venture through its corporate venture-financing arm, it can increase the complementarity between products of the venture and the headquarter. The effect of having an increase in complementarity is a softening of ex post product market competition with rival products. Hence, in deciding whether to finance the venture, the headquarter faces a trade-off between, on the one hand, being more aggressive ex post in the product market, and, on the other hand, using venture financing to soften ex post competition with substitute products.
Large corporations often establish corporate venture funds to finance start-up firms. Gompers and Lerner (1998) show that already during the late 1960s and early 1970s, more than 25% of the Fortune 500 firms established corporate venture funds. Currently, over 900 VC funds included in the large Venture Economics database (from Thomson Financial) are corporate subsidiaries, which represents 15–20% of all US VC funds. In Europe, about 11% of the funds raised in 2000 came from corporate investors (EVCA, 2001). There are several reasons underlying the use of corporate venture financing.1 One reason is that it enhances flexibility for a headquarter (HQ) backing the corporate venture capital fund, by allowing HQ to focus on the core business rather than on other secondary issues (out-sourcing of R&D activities). It also allows corporations to respond more rapidly to investment opportunities. Furthermore, the use of such a financing scheme may enhance trust from the venture, because it signals that HQ will not steal the novel idea of the venture. Finally, there is also a strategic reason behind it. Corporate venture financing can be used as a strategic vehicle to generate demand. In this paper, we focus on this last motive. There are some real examples of this kind of motive. For instance, Oracle Corporation, a leading IT company, invested in Red Hat Inc. (a company providing Linux operating system) in order to seize the opportunity to sell version of its programs to run on Linux (Wall Street Journal Europe, 2000). In that way, Oracle Corporation can generate demand for its own products. Another example is Intel Corporation which nurtures new start-ups, that Intel Corporation hopes will grow and become customers for their microprocessors (Wall Street Journal Europe, 2000). Still another example is Cisco Systems, a leading IT company, which constantly finances start-ups (see The Economist, 2000 and Paulson, 2001). The following quotation nicely captures the motive behind Cisco’s strategy. “Cisco finds a particular technology or company that is interested in cultivating, but the company is not at the stage where an acquisition is appropriate. Cisco places some key Cisco employees inside the external company. These people have the charter to cultivate the desired technology and build it into a marketable product that meets Cisco’s future expected product requirements.” (Paulson, 2001, p. 158) The use of corporate venture financing potentially allows HQ to influence the degree of complementarity between its own product and the final product of the venture. For instance, when HQ’s product is used as input by the venture, the use of it allows HQ to secure demand from other companies when its product can be substituted with other inputs. More clearly, let us consider the case of an innovative venture that produces an electronic final good. Suppose that in producing the good she faces a choice between using a specialized and a standardized processor as an input in the production. Assume that even if the price of a specialized processor is higher than the price of a standardized one, utilizing the former may enable the venture to produce the final good at lower marginal costs than using the latter one. However, in order to enable this reduction in marginal costs, the venture has to adapt its product to HQ’s one. We can think of it as effort that the venture has to exert in order to realize the complementarity benefits from using the specialized processor. Evidently, there is a trade-off as to which type of processor to be utilized here. If the total costs of obtaining the specialized processor and exerting effort are lower than the benefits accrued in terms of reduction in marginal costs, then the venture will utilize the specialized processor. Suppose that the specialized processor is produced by HQ, which is an upstream monopolist, and that the standardized processor is produced by many firms in a competitive upstream market, such that the standardized processor will be sold at marginal costs. Depending on the relative magnitude of the upstream marginal costs and the downstream marginal costs of using a certain kind of input, HQ may or may not be able to do a price-undercutting strategy in order to attract demand for the specialized processor. The corporate venture financing enhances the flexibility of the price-undercutting strategy by increasing the complementarity between the venture’s final product and HQ’s specialized processor. Consequently, HQ will not have to undercut the competitors’price so much. In an extreme case, in which HQ is not able to do a price-undercutting strategy, i.e., because its marginal costs of producing the specialized input are prohibitively high, the corporate venture financing enables HQ to influence the degree of complementarity in its own favor during the R&D stage, and in this way to “steal” demand from the competitors. Santhanakrishnan (2002) provides empirical evidence on product market alliances between the headquarters of corporate venture capitalists and their VC-backed ventures that illustrates this point. In this paper, we also show that in the absence of corporate venture financing there can be an expropriation problem. The venture will be reluctant to exert effort in order to realize the complementarity benefits. This is because the venture anticipates that HQ will expropriate these benefits, i.e., by taking them into account in the determination of the specialized processor price. This, of course, reduces the incentives of the entrepreneur to invest in such complementarity benefits. To resolve this expropriation problem, HQ can provide financing to the venture through its intermediary, i.e., a corporate venture fund. Once a financing in the form of equity participation is provided, the corporate venture capitalist can impose the optimal degree of complementarity that has to be carried out by the venture and the compensation of the entrepreneur can be set in the agreement. One way of ensuring that the complementarity standard will be imposed by the venture is to have HQ actively involved in the venture’s activities. For instance, HQ can post some of its key staffs in the venture to provide value added services and to shape the venture’s key strategic plans. It is quite common to have the corporate venture capitalist to do so on behalf of HQ.2 Similar to our paper, Hellmann (2002) analyzes the strategic role of venture investing. However, his focus is different from ours. He focuses on the venture’s choice of financing, i.e., either a corporate venture financing or an independent venture financing. Thus, in his paper, the entrepreneur is an active player deciding which venture capitalist to sign a contract with. The use of corporate venture capital mitigates the potential expropriation problem at the R&D stage. In contrast, our paper takes another perspective. It focuses on HQ’s active role in utilizing corporate venture financing strategically as a commitment to compensate the entrepreneur for potential opportunistic behavior in the product market.3 It therefore helps to avoid a potential ex post expropriation problem in the product market (and not an expropriation problem in the R&D stage). We argue that centering the focus on HQ enables us to pin point the strategic role of corporate venture financing in securing demand for HQ and show that this depends on the existence of substitute inputs for the venture. By this we analyze an explicit channel through which complementarity gains can be achieved. There are some related papers investigating the role of corporate venture financing, however they emphasize different aspects of corporate venture financing from the securing-demand motive that we are focusing here. Bharat and Galetovic (2000) analyze the choice of financing of a new venture. It could be financed by a venture capitalist or by a corporation directly. Their focus is on the link between the strength of property rights and the choice of financing. They show that when property rights are strong, the venture is funded by the venture capitalist, however when property rights are weak, the venture may be financed by the corporation, or the venture capitalist, or remains unfunded. Similar issues have been raised by Aghion and Tirole, 1994 and Ambec and Poitevin, 1999 for HQ’s decision whether or not to do R&D in-house or outside the organization. In addition, there are a number of empirical studies providing valuable insights into the behavior of corporate venture funds as opposed to independent funds (e.g., Siegel et al., 1988, Winters and Murfin, 1988, Gompers and Lerner, 1998, Maula, 2002, Maula and Murray, 2001, Birkinshaw et al., 2002, Chesbrough, 2002, Santhanakrishnan, 2002, Dushnitsky and Lenox, 2005a and Dushnitsky, 2004). More generally, our research can be related to issues of entrepreneurship (Hellmann, 2001a, Gromb and Scharfstein, 2002 and Landier, 2002) and on venture capital finance in general (Lerner, 1995, Bergemann and Hege, 1998, Gompers and Lerner, 1999, Hellmann and Puri, 2000, Casamatta, 2003, Cornelli and Yosha, 2003, Inderst and Müller, 2004, Kaplan and Strömberg, 2003, Schmidt, 2003, Cumming, 2006 and Kaplan and Strömberg, 2004, and many others). Some of these papers emphasize the double moral hazard problem between entrepreneur and venture capitalists, an issue that we completely abstract from in this paper. Finally, our paper is also related to the growing literature on venture capital exits (for instance, Black and Gilson, 1998, Bascha and Walz, 2001, Hellmann, 2001b, Neus and Walz, 2005, Cumming and MacIntosh, 2003 and Schwienbacher, 2004) and public policy for the venture capital market (Keuschnigg and Nielsen, 2003 and Kanniainen and Keuschnigg, 2004). The rest of this paper is organized as follows. Section 2 presents the model. The analysis of the model is covered in Section 3. A general discussion on corporate venture financing (with additional examples) is done in Section 4. Section 5 covers some interesting extensions. Finally, Section 6 concludes.
نتیجه گیری انگلیسی
There are several reasons why a firm may establish a corporate venture fund (Gompers and Lerner, 1998). One of these reasons, which is quite often cited in the popular business news is the desire of big corporations to get an opportunity to sell their own product, and thus securing demand for the firm. In this paper, we provide a formalization of this kind of reasoning. Corporate venture financing allows the firm to influence the degree of complementarity between its product (used by the venture as an input) and the final product of the venture. This allows the headquarter to “steal” demand from other companies when the headquarter’s product can be substituted by other products. We show that in the absence of corporate venture financing there can be an expropriation problem. We also show that the (either direct or indirect) securing demand effect is made possible because corporate venture financing enhances the flexibility of a price-undercutting strategy in the product market. The firm will not have to undercut its competitor too much. At the extreme case, in which the firm is not able to do price-undercutting strategy, the corporate venture financing will enable the firm to “steal” demand from its competitors. The incentives to build a corporate venture fund increases with the competitive pressure in the product market and with the size of the market. Our framework can also be embedded into the literature on network economics, in particular on the issue of competing platforms. It is often the case that an operating system producer encourages software developers to create new applications using the operating system as a platform, and thus enhancing the value of the operating system in the market. By doing this, the producer is able to create a stronger base for its operating system in the market.26 In many cases, the operating system producer can accomplish this goal by providing software building blocks that lower the costs of developing complementary software applications. Cusumano and Yoffie (1998), for instance, mention that as of 1995 Microsoft spent about 65 million dollars annually supporting independent software developers and had about 400 technical support engineers who exclusively served independent developers. In our framework this assistance in terms of the provision of software building blocks is substituted with a financial assistance that will enable independent developers to innovate in a way that lowers the costs of developing complementary software applications. Integrating these two aspects in one framework and deriving conditions under which a particular approach is better would be an interesting area for future research. Last but not least, our paper can be extended into an entrepreneurship paper along the line studied by Hellmann (2002) by focusing more on the strategic action of the entrepreneur rather than the strategic action of HQ. It allows to investigate the incentive of an entrepreneur either to innovate inside HQ (intrapreneurship), or to establish a start-up firm outside HQ (entrepreneurship).