Families Make Corporate VC Investments Better, Research Shows

Family-owned corporate venture capital investments are more likely to complete an IPO or get acquired.

Brent Lewin/Bloomberg

Brent Lewin/Bloomberg

When families get involved in corporate venture capital investments, success follows, according to new research.

Family-owned corporate VC firms add more value to their portfolio companies, which are more likely to have successful exits, better market performance after initial public offerings, and more valuable patents after those IPOs, according to a paper published on Wednesday.

Family-owned corporate ventures are also more likely to “generate shareholder value for their parent companies” than those not owned by families, according to academic research from Mario Daniele Amore of Bocconi University, Samuele Murtinu at Utrecht University, and Bocconi’s Valerio Pelucco.

For their study, the researchers set out to determine how deals were affected by the presence of families in corporate venture capital efforts, which are investments owned by a parent corporation aimed at “spurring parent organizations’ innovation and market value.”

They used an Eikon dataset of U.S.-based venture capital deals from 2000 through 2017, which included detailed deal and venture firm information. The researchers defined family-owned parent organizations as those with at least a 5 percent or higher equity stake owned by family, including firm founders or their descendants. They found this information from corporate proxy statements, company and other websites, and financial newspapers. The researchers also used Compustat data for the financial data on organizations.

The final sample included 4,834 ventures in 8,942 deals made by 306 parent companies from 2000 through 2017, the paper said.

Around one-third of the deals in the sample (2,516 in total) had a family-owned parent company involved. They invested a total of $12.4 billion.

How Family Backing Impacts Performance

The researchers found that family corporate venture capital firms behave differently than others. For example, they are more likely to syndicate, or to invest alongside private equity firms, banks, insurance companies, angel investors, and incubators.

They also don’t mind investing during a crisis: During the 2008 financial crisis, families invested twice as much as non-families and made more deals during that time period. “These findings suggest that families’ desire to maintain control and their long-term horizon improve the responsiveness of their firms to hard times,” according to the paper.

When a venture is backed solely by families, the likelihood of success, as measured by whether they were able to complete an IPO or get acquired, increased by 4.3 percentage points compared to non-family ventures.

Family firms also were able to generate slightly more value for shareholders than their non-family peers and generate more patents.

“Collectively, our findings are consistent with the view that family control entails a mix of risk mitigation and long-term preferences beneficial for venturing activities,” the authors concluded.