The Strategic Use of Corporate Venture Financing for Securing Demand

This paper focuses on the strategic role of corporate venture-financing carried out by a corporation (a headquarter). When the headquarter finances a venture through its corporate venture-financing arm, it can increase the complementarity between products of the venture and the headquarter. The effect of having an increase in complementarity is a softening of ex-post product-market competition with rival products. Hence, in deciding whether to finance the venture, the headquarter faces a trade-off between, on the one hand, being more aggressive ex-post in the product market, and, on the other hand, using venture financing to soften ex-post competition with substitute products