This paper analyzes the emergence of sponsored spin-offs where the parent firm retains partial ownership. A sponsored spin-off is a spin-off, which has received active support from the parent organization. The paper analyzes this emergence in a corporate venturing setting and targets the competitive advantages and disadvantages of corporate venturing (over e.g. traditional venture capitalists) in the early business creation process. The research object is a large multi-technology firm in Sweden, which has incorporated the use of sponsored spinoffs in thiir corporate venturing activities. Four interviews were carried out with respondents from the corporate venturing unit and two spin-off firms.
In this paper we develop a model based on increasing costs to decrease information asymmetries between the corporate venturing unit and external actors when more resources are devoted to developing and supporting the nascent venture. The model illustrates the competitive advantage of corporate venturing units in early stage development of internal non-strategic ventures and the emergence of sponsored spin-offs from such non-strategic ventures, where the parent firm retains partial ownership. Corporate venturing units have an informational advantage over external actors such as venture capitalists concerning e.g. technological due diligence of internal ventures. This advantage is however limited to developing and supporting early stage (nascent) ventures.
The challenge for real life firms is to estimate when they no longer can profit from the information asymmetry, i.e. when the cost for further venture development has reached some critical level. The analysis presented here illustrates how a low-cost/low risk corporate venturing strategy can force the corporate venturing unit to 'guesstimate' this point. In relation to this, we suggest an explanation of the creation of sponsored spin-offs based on an interpretation of sponsored spin-offs as an emergent phenomenon, caused by relatively simple environmental restrictions (low cost/low risk), rather than a carefully planned- for strategy.
Elsevier Science ltd , 2007. Vol. 5, 157-173 p.