17 Oct 2013
Biotech start-ups are increasingly turning to corporate venture capital divisions for backing with dramatic results for innovation, according to new research by leading academics.
The research, by Gary Dushnitsky, Associate Professor of Strategy and Entrepreneurship, London Business School and his co-author Dr Alvarez-Garrido, is featured in the British Venture Capital Association’s report ‘The Missing Piece’ published today and finds that corporate venture capital is now the driving force behind cutting edge medical innovation.
Dr Dushnitsky, also Academic Director, Deloitte Institute for Innovation and Entrepreneurship, explains: “Biotech start-ups are increasingly turning to corporate venture capital arms, which are steadily on the rise, while traditional venture capital funds are partially drying out. In a recent Nature Biotechnology study*, my co-author and I find that the shift in funding patterns is resulting in an increase in scientific publications as well as patenting output.
“Put differently, the shifting landscape of entrepreneurial finance, not only finds a role for corporate venture capital, but also stimulates cutting edge medical developments originating from corporate backed start-ups.”
Moreover, Dr Dushnitsky adds: “Corporate venture backed start-ups are more likely to generate innovation than start-ups backed up by private venture capital.”
Using a dataset of 572 biotech start-ups over the period between 1990 and 2011, the authors found that corporate venture backed start-ups are more likely than privately backed start-ups to generate innovation, as measured by patenting activity among other indicators.
Despite the positive correlation between corporate venture capital backing and increased innovation, the corporate venture capital trend is still met with a mixture of enthusiasm and scepticism. Corporate backed start-ups don’t currently have the same access to innovation funding as traditional venture capital backed start-ups. But, according to Dr Dushnitsky’s findings, opening up funding to corporate backed start-ups looks like a good investment.
The study identifies the implications of the findings for policy makers, biotech entrepreneurs, and large firms that operate corporate venture capital activity.