Crossing the Organizational Species Barrier: How Venture Capital Practices Infiltrated the Information Technology Sector

We examine the contagion processes whereby practices originating in one organizational population spread into and diffuse within a second. We theorize that “endemic” innovations native to one population spread to other populations through two distinct forms of contagion. We test this argument by observing information technology firms’ adoption of corporate venture capital programs. Results suggest that geographic proximity triggers cross-population contagion, that within-population contagion arises from different causal mechanisms, and that firms maintaining close cross-population ties pay less attention to the actions taken and outcomes experienced by other firms within their own industry. Fueled by emerging technology and a robust economy, corporate equity investing in start-up ventures exploded in the 1990s. The decade’s last five years alone saw a 3,800 percent increase, as corporate venture capital investments grew from $172 million to $6.8 billion (Venture Economics, 2006). Corporations scrambled to establish venture capital programs, identify best practices, and take equity in young entrepreneurial ventures. Rene Savelsberg, head of Philips’s corporate venture capital arm, described his program’s genesis as follows: