Startups are the backbone of modern-day innovation. Big corporations, for their part, are always looking for the “next big thing,” often turning towards startups to gain access to fresh ideas. They do this using their corporate venture capital (CVC) arm, an internal division focused on investing in startups related to the parent company’s business, or by making direct investments in the startups themselves.
Professor Harshit Rajaiya has received a Social Sciences and Humanities Research Council Insight Development Grant for his project titled “Corporate Investment in
Startups: Direct Equity Investment versus Corporate Venture Capital (CVC) Investment.” His goal is to understand why some corporations invest directly in startups while others do so through their CVC arm, and analyze related costs and benefits associated with each approach.
First to explore the topic
Research has shown that CVC investments have become very important funding avenues for startups. Indeed, over the past two decades, CVC investments in startups have significantly increased, racking up over $100 billion of investments in 2021 alone.
However, research has overlooked the impact of direct corporate investments, even though evidence suggests that more corporations invest directly in startups than through their own CVC arms.
Dr. Rajaiya, Dr. Shantanu Dutta and their co-applicant are the first to explore this topic. They will examine its impact on both startups and corporate investors and the ways investments affect employment outcomes for both parties. They aim to advance entrepreneurial finance research and determine if these investments foster strategic alliances that accelerate innovation.
By uncovering the motivations behind corporate investments in high-value startups, this project can inform smarter investment strategies for both corporate investors and policy makers. It could foster high-value entrepreneurship, boosting economic growth through job creation and increased innovation.
