How does venture capital influence firm innovation? A literature review and prospects

DUAN Yongqian1,2 CHEN Jin1,2

(1.School of Economics and Management, Tsinghua University, Beijing, China 100084)
(2.Tsinghua Center for Leadership Development and Research, Tsinghua University, Beijing, China 100084)

【Abstract】With the development of venture capital industry and the success of venture capital-backed start-ups, more and more scholars have engaged in research on the role of venture capital in innovation. However, there still exists controversy on this topic, especially on how venture capital influences innovation at the firm level. Most reviews attribute these differentiated results to various factors existing in the relationship between venture capital and start-ups, only based on qualitative analysis. Regarding the lack of theoretical support and quantitative evidence in previous research, this paper firstly integrated the bibliometric method into literature review and explored the underlying mechanism behind the influence of venture capital on start-ups. According to the evolutionary path of applied theories and the mapping knowledge of theme topics in 692 related articles, this paper figured out how previous literature reveals the relationship between venture capital and firm innovation from different perspectives of signal theory, resource-based view (knowledge-based view), institution theory and real option theory, and clarified the differentiated research trends towards private venture capital (PVC), (corporate venture capital (CVC), and government venture capital (GVC). In order to make a more comprehensive and solid illustration, this paper sorted out all the critical factors in each phase of venture capital investment cycle as analytical bases, including fundraising, pre-investment selection, investment strategy, post-investment management and exit management. Based on these essential variables, this paper illustrated how venture capital enhances firms’ innovation efficiency by releasing signals to other stake holders, influences firms’ innovation degree and quality through the flow of resources and knowledge, constructs firms’ innovation efficiency and pattern via institutional logic, and constraints firms’ innovation quality and pattern due to distorted incentives. Further, the differentiated influential consequences and mechanisms of PVC, CVC and GVC were compared from four theoretical perspectives. The results reveal that PVC plays a dominant role in prompting firms’ innovation degree and efficiency, CVC is the most supportive for firms’ high-quality and exploratory innovation, and GVC can just work as stimulus in venture capital industry but has no directly positive effect on start-ups. Meanwhile, all the influences of venture capital are contingent to the macro and industrial environment. Thus, taking the moderate role of environmental variables into account, this paper finally constructed a holistic model between venture capital and firm innovation at multi dimension, which specifies the prerequisites, contingent factors, central driving forces and underlying mechanisms behind the influences of venture capital. On the one hand, this model clearly demonstrated the multiple roles of venture capital in firm innovation, explaining why controversy exists in the related literature. On the other hand, it built up a comprehensive analytical structure and logical chain for future research, with strong theoretical reference and evidence support.

【Keywords】 venture capital; firm innovation; evolutionary path; mapping knowledge; literature review; prospect;


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CN: 31-1063/F

Vol 43, No. 01, Pages 136-152

January 2021


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