On the Strategic Use of Corporate Venture Financing for Securing Demand

In this paper, we focus on the strategic role of corporate venture financing by a corporation in securing own demand. When the headquarter finances the venture through the corporate venture capitalist, he commits himself to compensate the venture for the effort to increase the complementarity between its product and the headquarter's product. The headquarter therefore faces the following trade-off: either be more aggressive ex post in the product market (by undercutting more its rivals) or use corporate venture financing to affect the venture's product innovation outcome to weaken ex post competition with substitute products. This allows him to secure demand for his own product.