In this post on the New York Times "Bits" blog, Claire Cain Miller writes about Google Ventures - the corporate venture capital fund established by Google in March 2009. According to the article, Google has increased the amount of investment activity lately and aims to invest approximately $100 million per year.
As I read the article, I began thinking about the literature on corporate venture capital. What did scholars find when they studied the effectiveness of corporate VC funds? The work of Gary Dushnitsky of Wharton and Michael Lenox of Duke seemed particularly interesting. These scholars argue that corporate VC funds pursue both financial returns and so-called "strategic benefits" i.e. they provide a "window on cutting-edge technologies" being developed by start-ups. Dushnitsky and Lenox have found that corporate VC funds can increase value for the corporate parent, but the results are specific to particular industries. They specifically find that corporate VC funds tend to do well in the devices, semiconductor, and computer industries - whereas the results do not appear positive in industries such as chemicals, metals, pharmaceuticals, and vehicles. Moreover, these scholars find that corporate VC funds create value when they explicitly seek strategic benefits, not simply financial returns.
Well, what about Google? From an industry perspective, it operates in a sector that has seen corporate VC funds achieve success according to the work of Dushnitsky and Lenox. However, this quote in the NY Times blog seems to suggest that Google has a strategic orientation in some cases, but not in all situations:
"Many corporations, including Cisco, Intel and Disney, have venture arms. Most have a strategic goal to fund projects that might someday be useful to the company. But Google executives emphasized that the fund is not an incubator for companies that Google wants to someday buy. It invests in Internet and advertising companies, but also in biotech and clean tech."