Entrepreneurial Finance Meets Organizational Reality: Comparing Investment Practices And Performance Of Corporate And Independent Venture Capitalists

This paper investigates the effect of compensation of corporate personnel on their investment in new technologies. The authors focus on a specific corporate activity, namely Corporate Venture Capital (CVC), describing minority equity investment by established-firms in entrepreneurial ventures. The setting offers an opportunity to compare corporate investors to investment experts, the Independent Venture Capitalists (IVCs). On average, they observe a performance gap between corporate investors and their independent counterparts. Interestingly, the performance gap is sensitive to CVCs' compensation scheme: it is the largest when CVC personnel are awarded performance pay.