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Strategic venture capital in the financial industry

A multiple-case study on autonomy and its implications

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Master Thesis


Business Administration>Entrepreneurship




Master Thesis: Venture capital There are many investment methods for venture capital. This section will introduce the types related to this research and explain the similarities and differences between the procedures and organizational structure of venture capital funds. company. Independent venture capital funds (IVC) usually take the form of a limited partnership (LP) (Ivanov & Xie, 2010). Investors who invest in IVC sign a limited partner agreement with an investment manager known as a general partner. These agreements are usually 10-year contracts to ensure that the limited partners invest capital into the fund. In addition to the traditional IVC structure, companies can also invest company funds directly in external start-ups, which is defined as corporate venture capital (CVC) (Chesbrough, 2002). CVC is usually organized as an independent unit within a company, and sometimes as an informal group (Ivanov & Xie, 2010). The operation of corporate venture capital units is usually similar to that of independent venture capital companies. They often invest in so-called syndicated investments with independent venture capital companies. However, although independent venture capital funds usually only aim at financial returns, corporate venture capital funds usually have both financial and strategic goals (MacMillan, et al., 2008). 1. The strategic goal can be to use external sources of innovation to bring New technologies enter the company, or alternatives can be evaluated by investing in broader technology and business directions that the company cannot pursue by itself (MacMillan et al., 2008). Strategic venture capital combines internal and external activities, focusing on the outside when building relationships with the startup ecosystem, learning new technologies, and investing in start-ups, and focusing on internal interactions with the company’s R&D and business departments to determine their interests and needs Internal (MacMillan et al., 2008). In order for VC to provide strategic value to the parent company, MacMillan et al. (2008) emphasized the importance of VC to understand the technical direction and business strategy of the parent company's operating unit. Strategic venture capital can communicate and interact with the company's R&D and business departments in different ways. Strategic VCs can briefly introduce their experience in the entrepreneurial ecosystem to business departments. Business departments can provide technical benefits or priorities to the fund. VCs can use the technology and business expertise of different departments within the company (MacMillan et al., 2008). 4.2 Benchmarking of Strategic Venture Capital in the Financial Industry This section introduces and compares the interviewed case companies. The results are based on a qualitative analysis of the respondents’ answers, observations, and empirical materials. These results are summarized, themed and presented as follows. Readers should note that since SEB has undergone a major organizational and strategic transformation and is still in the process of determining rules and procedures, the reliability of the answers given on this topic is slightly lower than that of other banks. However, the results of the SEB organizational design are based on multiple interviews with different employees (see Figure 2 in Section 2.3.3), so that differences in answers can be found. The CSO of SEB made the choice based on the person's level of responsibility. Overview One of the criteria included in this study is that VC's strategic focus is to provide a company with capital for VC investment. The term "capital provider" is used to describe the company for which venture capital makes strategic investment, including the parent company of corporate venture capital and the limited partner of independent venture capital. In Table 5 below, the VCs included in this study are summarized. In the first row of Table 5, we can see the relationship between the studied VCs and their respective capital providers. The second row in Table 5 shows the difference in organizational structure. SEB, HSBC and Citigroup all have venture capital departments under the corporate umbrella, while BBVA chose to conduct venture capital through independent fund Propel Venture Partners. BBVA made this choice because the bank encountered difficulties in its corporate venture capital structure; first, it became more and more complicated to obtain and participate in the best start-ups (Propel Venture Partners, Managing Partner, 2016 ), because these startups believe that they can get better support from the traditional VC structure than work with a large bank (Lundon, 2016). Secondly, the approval of Volcker Rule 2 in the United States meant that the allowed investment scale was restricted and corporate venture capital was restricted from fully realizing its investment potential (Propel Venture Partners, managing partner, 2016). Therefore, Propel Venture Partners was established to manage the investment portfolio of BBVA Ventures, the former corporate venture capital arm. The venture capital firms interviewed are located in the United States and Europe, although some venture capital firms also have offices in the other locations listed in Table 5. However, the interviewees were venture capital managers operating in the aforementioned locations. In addition, the main geographic markets where venture capital invests in investment activities are different, as shown below. Read Less