Effects of a Portfolio Company’s Alliance Formation on the Market Returns of Its CVC Firm

Prior studies have shown that an incumbent company, as a strategic investor, can benefit by investing in young entrepreneurial startups. We extend this research stream by arguing that the scope of sources regarding strategic benefits is not limited to the boundary of a portfolio company, but can extend to its interorganizational collaborations. With analyses of a sample involving 1,013 alliances formed by 336 CVC- backed U.S. startups between 1996 and 2012, we find that alliance formation of a startup increases the market returns of its strategic investor (CVC) when there is industry overlap between the CVC and the start-up. We also find that this effect is positively moderated by the absorptive capacity of the CVC and the geographical closeness between the CVC and the startup. Furthermore, we find that industry overlap between a CVC and the alliance partner of a startup increases the market returns of the CVC to the alliance formation when the CVC invests in a startup in a different industry. These findi...