Innovation and Venture Capital

The Business Cycle paradigm is not only having its impact on profit and employee retention but it is a key factor in leading the process of innovations.Knowledge at Wharton has an article on the role of VC’s in spurring innovation despite the bubble burst and economic upheavals.

After the dot-com bubble burst about five years ago, corporate-sponsored venture capital funds jumped off that bandwagon in droves. Investing in startup technology companies -- thought to be a quick way to beef up the corporate bottom line and look technologically hip while doing so -- suddenly didn't seem like such a smart idea.

So why bother? Because venture capital is an essential tool available to a corporation to increase its innovativeness, says Wharton management professor Gary Dushnitsky. In his dissertation work, as well as three co-authored papers with Michael J. Lenox of the Fuqua School of Business at Duke University, Dushnitsky argues that corporate officials -- who once saw a quick windfall in financing outside technologies -- got it wrong then, and may be wrong now to recoil from making such investments.

Corporate venture capital is one leg of a three-legged stool whose other two legs are a strong internal R&D capability and strong alliances with academic or government researchers.

Corporations that have stayed the course with venture investing -- DuPont, Johnson & Johnson, IBM and others -- tend to make equity investments in innovative startup companies with strategic rather than simply financial motives, and in time reap both strategic and financial benefits, Dushnitsky suggests, noting that "a strategically driven program exploits synergies between what I am doing and what they are doing." It's creating actual value that in turn is translated into superior financial performance.

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