Balancing Risk and Learning Opportunities in Corporate Venture Capital Investments: Evidence from the Biopharmaceutical Industry

When seizing new investment opportunities, CVC investors face a tension between learning rewards and risks in the form of market and technological uncertainties. Based on an inductive qualitative study relying upon a unique, longitudinal dataset of 260 CVC deals carried out by the top CVC investors in the biopharmaceutical industry between 2003 and 2013, we argue that the extent to which a CVC investor (and its corporate sponsor) may learn from new ventures depends on the nature of its risk attitude and, more in general, on its portfolio diversification (low risk) or concentration (high risk) strategy. In so doing, we identify four typologies of CVC portfolio strategies that allow for growth and learning options available to the parent sponsor, showing that there is a curvilinear (U-shaped) relationship between learning propensity and portfolio diversification. We also develop a tool for determining a CVC opportunity set that may help a fund to optimally allocate capital based on its own risk-return preferences. Theory for CVC decision-making is advanced by furthering two propositions requiring future empirical validation.