An Integration of the Resource Based View and Real Options Theory for Investments in outside Opportunities

There is a growing trend by established firms to use a multitude of External Corporate Venturing (ECV) mechanisms (alliances, partnerships, joint ventures, acquisitions, licensing agreements and investments in corporate venture capital) to acquire external innovations. In this paper, we develop a framework within which firms choose ECV mechanisms that are best aligned with characteristics of the target company. More precisely, we investigate the effect of relatedness and uncertainty on governance mode choices by combining the Resource-based View of the firm and Real Options Theory. We propose a bi-dimensional matrix to show under which conditions of relatedness and uncertainty corporations choose among corporate venture capital, strategic alliance, joint venture and acquisition. We suggest that: (a) When the level of relatedness between the corporation and the target company is high and the level of uncertainty surrounding the target company is low, corporations are more likely to choose acquisitions as mechanism of ECV. (b) When both the levels of relatedness and uncertainty are high, corporations are more likely to choose strategic alliances (and corporate venture capital as second alternative). (c) When the level of relatedness is low and the level of uncertainty is high, corporations are more likely to choose corporate venture capital (and strategic alliances as second alternative). (d) When both the levels of relatedness and uncertainty are low, corporations are more likely to choose joint ventures as mechanism of ECV. Finally, we present a dynamic perspective to assess how these different forms of ECV transit over time, once part of uncertainty is resolved and a certain level of familiarity with the new knowledge is achieved. Key-words: External Corporate Venturing, Strategic Real Options, Resource-based View