Of the many kinds of new businesses that are created every
year, researchers and policy makers have been most interested in the ones that
pursue innovative technologies and market opportunities. They are the ones with
the greatest impact on the world, and much effort has gone into studying what
makes them innovative. But let’s take a broader view on this question. What if
firms around them also affect their innovation – specifically their investment
partners, firms that supply them with money and expect returns from their
innovations? The answer would be especially interesting if different investment
partners had different effects. And as it turns out, they do.
An article in Administrative Science Quarterly by Emily Cox
Pahnke, Riitta Katila, and Kathleen Eisenhardt shows how this happens. The
important difference is how each organization doing investment has people
trained in specific ways, and adhering to specific norms, as a result of their
recruitment and career histories. For innovative ventures, venture capital (VC)
firms are special because they invest in potential – in firms that could easily
fail, and usually do, but have very significant profits when they succeed. VCs are
different from sources of corporate venture capital (CVC), which are investment
arms of corporations. They are special because they invest in fit to the
corporate strategy – firms that develop products and technologies that match so
well that they can become integrated into the corporation or at least use its
resources well. Then there is the third kind of special investor—government
agencies. They are special because they are interested in science and
technology with significant societal impact.

So what is going on here? We can tell that one type of investment
partner – VCs – has clear and measurable goals and is good at accomplishing
them. For CVC and governments, it is harder to tell. Either they are not doing
well, or their goals are not exactly what we can measure. Looks like an
interesting topic for further research, because each of these investment
partners places big bets on our future.