Venture capital investment decisions and frameworks - Dissertation Example

This dissertation has developed a real options framework on the propensity to make CVC investments. CVC investments are viewed as containing a series of real options. The initial investment opportunity is analogous to a call option to invest. Upon exercising the call option, the investing firm acquires at least two additional real options: the abandonment option in adverse market conditions and growth options in favorable market conditions. The dissertation proposes that established firms' propensity to make CVC investments are influenced by the factors that determine the economic value of the real options embedded in CVC projects.

These options value drivers include uncertainty, irreversibility, growth potential and competition. This dissertation finds strong empirical support for the real options view of CVC investment decisions. In addition, since real options are created and exercised through managerial discretion that is enabled and constrained by firm-level resources and capabilities, this dissertation also examines how firm-level heterogeneity in resources and capabilities influence the economic value of real options and CVC investment propensity.

In particular, this dissertation focuses on how resource base diversity may enhance the value of growth options and help with timely abandonment and efficient switching. The empirical analysis provides evidence for the positive effects of R&D and related knowledge base on CVC investment propensity, but does not find any statistically significant positive effect of resource base diversity on CVC investment propensity.