Complementarity in explorative strategies: corporate venture capital and corporate diversification

This paper uses data on 222 Corporate Venture Capital (CVC) funds created by 186 U.S. public firms during the period 1996–2006 to examine the relationships between corporate diversification and CVC fund diversification as different forms of exploration strategies. The existence of relationship in terms of complementarity vs. substitution between those strategies is analyzed both from a market and a technological perspective. Our results suggest that corporations undertake CVC investments to substitute corporate diversification if the focus is the exploration of new markets. On the other hand, CVC seems to complement direct corporate diversification in the search of new technological domains. We also find that these relationships are sensitive to industry-specific factors: in high-tech sectors the substitution effect for the market side vanishes and the technological complementary effect is amplified.