During the Internet bubble, corporate venture capital arms—subsidiaries of large corporations that invest in startups—were seen by many of their parent companies as a way to benefit from innovation. For example, Intel Capital invested in the open source software company Red Hat (RHT) in 1998 because it viewed its products as complementary to the computer hardware that Intel (INTC) produces. In particular, corporate venture capital promised to let companies successfully harness new technologies to their advantage. Rather than have their products made obsolete by technological change, big companies could take advantage of those changes by investing in startups. Backing biotechnology startups, for example, could let major pharmaceutical companies exploit new ways of making drugs and remain powerful, despite the challenges of new drug-development technologies. Today, large companies face no fewer opportunities and threats from new technologies than they did during the Internet bubble, but now they are providing a much smaller share of venture capital dollars. Indeed, corporate venture capital activity has in recent years shrunk from over 15% of dollars invested during the late 1990s to less than 8% for every year since 2001, roughly equivalent to the corporate venture capital share back in 1996 and 1997. (See figure to the right.) Although some academics and business pundits had thought that established corporations were changing strategies and becoming more willing to invest in startups to help manage technological change, that trend appears to have been little more than aberrant feature of the dot-com boom. can venture capital control change?As a rule, large corporations don't see investments in startups as an important strategy for responding to technological change. As a result, few big companies are a major source of venture capital for startups. At first glance, that seems odd. Many large, established companies are facing major challenges in markets where new companies seem to be developing alternative technologies. In the automobile sector, for instance, there are a large number of electric vehicle startups betting that cleaner energy vehicles will replace those powered by gasoline. Similarly, the startups that provide virtual machine software, which lets computers run more than one operating system at a time, are a threat to companies such as Microsoft (MSFT), which depend on selling operating systems. Investing in startups that make big established companies' technologies and business models obsolete would seem like a good way for them to maintain dominant positions in the marketplace. But corporate venture capital arms are at a major disadvantage compared with independent venture capital firms. They have to invest with their parent company's strategy in mind, which makes it difficult to make a bet on truly revolutionary startups. Doing so might mean backing a venture that aims to destroy the parent company. For example, how could a telephone company's venture capital arm have invested in a Voice-over-Internet-Protocol startup? Even if the VOIP startups were the best choice for telecom companies' venture capital arms, they would have had a tough time backing companies that many in the telecom industry view as the enemy. Here, the strategic approach is clearly inferior to the financial-return orientation of independent venture capitalists, who don't care which companies might be put out of business by the startups they back. dense decision-making structuresOnce an investment has been made, a corporate strategic focus makes it hard to sell the portfolio company to the highest bidder. If that bidder is the parent company's arch rival, the parent company's senior management isn't going to want to proceed—even though a rival is probably the most promising source of a high bid. (Noncompetitors are unlikely to be as interested.) Another problem with corporate venture capital is that the dense structure of large companies, with complex pay policies and organizational hierarchies, hinders decision making by venture capitalists. People with the talent for spotting successful startups are going to prefer working in settings where they can make decisions without the constraints imposed by boards of directors of large public companies. As a result, corporate venture capital arms have a hard time retaining the best of the best in the venture capital industry. Because venture capital and big, established companies don't mesh well together, corporate money will remain a small part of the venture capital pool. While some entrepreneurs might find the venture capital they need from corporate arms, most of the venture money that goes to finance their dreams of challenging large, established companies with disruptive technologies and business models will come from independent investors.