Corporate venturing, allocation of talent, and competition for star managers

We provide new rationales for corporate venturing, based on competition for talented managers. As returns to venturing increase, firms engage in corporate venturing for reasons other than, capturing these returns. First, higher venturing returns increase managerial compensation, to which firms respond by increasing incentives. Managers increase effort, prompting firms to reallocate them to new ventures, where the marginal product of effort is highest. Second, as returns to venturing become large, corporate venturing emerges as a way to recruit/retain managers who would otherwise choose alternative employment. We derive several testable empirical predictions about the determinants and structure of corporate venturing.