A (good) family business

A STUDY ON THE US MARKET HIGHLIGHTS THE KEY ROLE OF FAMILY BUSINESSES IN THIS SECTOR, HIGHLIGHTING THEIR SIZE, RESILIENCE AND SUCCESS. WHILE WE WAIT FOR AN INCREASE IN THE NUMBER OF COMPANIES WITH THEIR OWN MEANS TO CONDUCT EXTERNAL VENTURING ACTIVITIES IN ITALY AS WELL

by Mario Daniele Amore, Valerio Pelucco, Associate Professor of Family Business; PhD Students; Bocconi University

Corporate venture capital is a set of activities through which established firms invest in start-ups. The phenomenon has grown significantly over time. As a result of this popularity, practitioners and researchers alike have been interested in understanding what factors shape corporate venture capital (CVC) strategies and success. Together with Samuele Murtinu from Utrecht University, we explored the role of families as owners of CVC funds, showing that family CVCs are a key player in the CVC industry, pursue different investment strategies (principally aimed at reducing the riskiness of their investments), and add more value to their portfolio companies, which are more likely to have successful exits, better market performance and more valuable patents after IPO.

Our data, which includes US listed companies from 2000 to 2017, reveals that families are a key engine of corporate venturing activities: about one-third of CVC deals originated from family firms. Since roughly one-third of the largest firms in the US are family-owned, we can say that corporate venturing is as diffused among family firms as it is among non-family ones. We also find stark differences in the strategies and outcomes of family and non-family CVCs. We found that family firms are more likely to join forces with other CVC funds, and invest in ventures closer in terms of geography and industry. To put it simply, family firms’ investment style helps to mitigate risk exposure through a higher availability of information on the ventures and better monitoring capabilities. Interestingly, family firms use these approaches more commonly when they invest in younger ventures (which represent more uncertain deals).

Studying the outcomes of CVC investments, we found that family-backed ventures are more likely to be successful, both in the short-run (higher likelihood of IPO/acquisition), and in the long run (better market performance after IPO, and greater innovativeness). We suggest that this is the consequence of family firms’ longer time horizons and greater commitment toward their stakeholders. These features make family owners more tolerant of temporary failures, and thus better able to foster the innovation performance of portfolio firms. Moving to parents’ performance, we find that family firms appear better able than non-family firms to derive shareholder value from their venturing activities.
Finally, we test whether families’ desire to maintain control, coupled with their long-term horizon improves the responsiveness of their firms to hard times. We studied how family and non-family CVCs differed in their response to the 2008-10 financial crisis. The latter showed a significant drop in VC investments; however, we found that family CVCs were more resilient, and invested twice the amount invested by non-family CVCs during the crisis.

Our study has focused on the US context due to the higher availability of data and the larger size of the CVC industry. In the Italian context, more and more companies reputable family firms have established CVC vehicles to conduct external venturing activities. Chiesi Ventures, for instance, is the CVC vehicle of the pharmaceutical group Chiesi established in 2014 to make equity investments in the field of rare diseases. As the number of CVC funds increases, it would be possible to extend our study to the Italian context – which is particularly interesting given the high prevalence of family firms.