The Dilemma for Managers’ Investments in Venture Capital

Many factors influence the decision power of managers. These factors can be internal or external. There are vast numbers of variables influenced by these factors.

A company has many reasons for investing in venture capital. Corporate venture can be defined as “strategic mechanism to attract, qualify, and monetize value from assets which originate externally or are beyond a clear fit with the organization’s existing focus”. Investments are required for small firms to start-up their business and do new innovations.

Corporate venture tool is very helpful for creating economic benefits. It includes the gain of break through technologies and relocating the status of business. This investment is very helpful for growth of a business as it allows the company to expand itself for entering into new market of opportunities. A company should identify that whether required investment is financially possible for it and in return would it be profitable? At time of investment, it is very important for a company to realize whether goals can be achieved by this investment program.

Manager’s responsibility is to make decisions that are beneficial for their organization and decisions shall be based on available information at time of crisis.

Many firms who have done heavy investments at start don’t necessarily end up well. There was a heavy amount of down fall between 2000 and 2001 and around 80% of decrease occurred in Corporate Venture Capital investments. The reason was that company’s expectations were high for such investments. This high instability in investments reflects that it is very difficult for many companies to manage their investments in this fast-paced and high risk environment. Past experience has placed great impact at any company and sometimes they are so uncertain whether they should invest or not even if company is doing well. So these investment programs are very helpful for understanding functions used in corporate development. There are strategic reasons to start projects out of which some go successful and rest of them fail.

There are two main characteristics of investments done in corporate venture capital, named as objectives and degree of investment at start-up. Different companies have range of such investments and this funding proves fruitful in long run. Strategic investment means that a company is investing to promote its sales and profits. A company which involves strategic investment locates and exploits synergies between itself and a new venture.

In addition to a strategic objective, an organization may have financial objective. This shows that main purpose of investment is to ensure as high return as possible. There are many competitive advantages of Corporate Venture Capital division over private Venture Capital. Some of them are superior knowledge of markets or technologies, its strong balance sheets and its ability to be a patient investor.

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