HOW TECHNOLOGICAL OVERLAP BETWEEN SPINOUTS AND PARENT FIRMS AFFECTS CORPORATE VENTURE CAPITAL INVESTMENTS IN SPINOUTS: THE ROLE OF COMPETITIVE TENSION

Abstract

Drawing on the literature on entrepreneurship and competitive dynamics, we investigate how technological overlap between spinouts and parent firms influences corporate investors' decisions regarding investments in spinouts. We suggest that a high level of technological overlap between a spinout and its parent firm deters potential corporate investors from making an investment in the spinout because of competitive tension arising from anticipated hostile actions by the parent firm. We further suggest that these negative effects are contingent on the tradeoffs between competitive risks and benefits. Our findings show that the negative effects are amplified when parent firms have a strong litigiousness in claiming their intellectual property rights. However, we find that the negative effects are mitigated when corporate investors can expect benefits from gaining indirect access to parent firms' technological knowledge. Using a sample of corporate venture capital investments in the U.S. medical device industry, we find evidence that supports our hypotheses.