Research On The Investment Strategy Of Corporate Venture Capital (CVC) And The Financial Choice Of Entrepreneurial Enterprise

One motivation for Corporate Venture Capital(abbreviation, CVC)goes external venture capital activities is to obtain strategic benefits generated by the success of the project. In order to obtain strategic benefits, CVC often require entrepreneurs pay more efforts to ensure the probability of project’s success. If the entrepreneur lack of effort(loaf on the job), CVCs undermine his commitment to penalize poorly performing entrepreneurs by terminating their projects. Compared to Independent venture capital(abbreviation, IVC), CVC is lack of commitment to exercise the termination threat. Anticipating the CVC’s lack of commitment to exercise the termination threat, the entrepreneur may be less inclined to work hard, and suboptimal performance may result.Only when the strategic benefit of the project is small,and the liquidation value of the investment brought no less than when it has to pay the costs, CVC will invest the project.In addition, the entrepreneur will choose his investor between CVC and IVC. We draw the following conclusions:(1) The entrepreneur will choose CVC in the following two situations:(i) the strategic benefits of CVC are very small, if the entrepreneur lack of effort, CVCs will penalize poorly performing entrepreneurs by terminating their projects;(ii) the strategic benefits of CVC are very large, CVCs will undermine his commitment to penalize poorly performing entrepreneurs by terminating their projects to obtain the strategic benefits.(2) If the strategic benefits is in the genneral level,the entrepreneur will choose IVC.(3) The amount of financing, the project’s whole outcomes and the regulatory costs will influnce the investment scope of CVC.Finally, We develop several extensions of the base model. Through the syndicatio between CVC and IVC, VCs can enhance the entrepreneur’s incentive to pay more efforts and improve project outcomes.