Contact

What is corporate venture capital? Seeking mutual growth


We are together in each step

Don´t you know what corporate venture capital is? In this article you will learn:

  • What is corporate venture capital?
  • Differences with venture capital
  • Types of corporate venture capital
  • Advantages and disadvantages of corporate venture capital
  • When is it more appropriate? 
  • Success examples 

What is corporate venture capital?

CVC is defined as the "practice in which a large company acquires an equity stake in a small but innovative or specialized company, to which it can also contribute management and marketing expertise; the objective is to gain a specific competitive advantage" (Corporate Finance Institute, 2021).

Corporate venture capital occurs when a large company acquires an equity stake in a small, innovative and specialized company, to which it contributes management and marketing expertise.

In essence, Corporate Venturing is about establishing structural collaborations with external companies or parties to drive mutual growth. These external companies are either startups (early stage companies) or expansion stage companies (companies that have found a suitable product/market) that come from outside the organization. The basic characteristics of corporate venture capital are (Pymerang, 2021):

  • The investment is made in the form of capital.
  • The investment is temporary, usually not exceeding 10 years.
  • They acquire minority stakes and are present on the boards of directors, although without assuming management responsibilities.
  • The investment is not made at one time, but contributions are made successively.
  • The amount of the investment usually ranges from 150,000 to 1,000,000 euros.



Differences with venture capital

Corporate Venture CapitalVenture Capital
Prefer to invest in early- to mid-stage companies.Avoid investing in uncertain technologies and unknown market needs.
They prioritize portfolio diversification over follow on in their portfolios.Initial investments are made in the first three years of the fund. Once the portfolio is established, the fund will follow on for the remainder of its life cycle.
Team composed of professionals from within the corporation who are familiar with the systems, needs and areas.They are professional investors with a financial profile seeking to scale the business through less corporate procedures.
They do not seek strict control due to fiduciary responsibilities and accounting implications.They seek to have control over their investments, play an active role in corporate governance and seek to have an impact on strategic decisions.

Endeavor, 2021



Types of corporate venture capital

  • Internal: this is a type of CVC that originates within the organization itself. It can arise in the creation of startups to carry out specific activities crucial to the organization or arise from the Innovation and Development department itself.
  • External: this is a collaboration with a startup external to the company.



Advantages and Disadvantages

AdvantagesDisadvantages
No refundRisk of loss of ownership
Fast cash flowPossibility of losing a significant portion of autonomy
Know howDelays can set your business back
Networking and contactsNegotiate legal terms

Fundación Innovación Bankinter, 2021



When is it most appropriate? 

This type of inverter is suitable for both small and larger investors.

For large companies, a CVC allows them to attract new technologies, talents, ideas and business models, thus meeting their need to innovate in their market offerings.

What is corporate venture capital? Seeking mutual growth

Entrepreneurs and startups also benefit from this collaboration model, reducing the risk involved in the creation of a new technology company.



Success examples

  • IEBS Business School: the business school has created its own corporate venturing service. It is the first business school in Spain to introduce this method. Through IEBS Corporate Venturing, the school offers a consulting and innovation service with the intention of helping companies in their innovation processes (Captio, 2017).
IEBS - La Escuela de Negocios de la Innovación y los Emprendedores
  • Google has created its corporate venturing service, Alphabet, with which it has invested in more than 300 startups.
  • Intel Capital: Adaptive Mobile, a technology company specializing in security systems for cell phones, was founded in Dublin in 2003. This project caught the attention of Intel Capital, which identified a complementary model to its own. The company has made a total investment of almost $20 million in the startup, which has become a leader in its sector. (Captio, 2017).


Complementary sources:

The M&A Professionals

MEET OUR SERVICES

MEET 
OUR METODOLOGY

Do you want to be up to date?

SUSCRIBE OUR NEWSLETTER

closechevron-downcrossmenuchevron-down