Don´t you know what corporate venture capital is? In this article you will learn:
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).
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):
|Corporate Venture Capital||Venture 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.|
|No refund||Risk of loss of ownership|
|Fast cash flow||Possibility of losing a significant portion of autonomy|
|Know how||Delays can set your business back|
|Networking and contacts||Negotiate legal terms|
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.
Entrepreneurs and startups also benefit from this collaboration model, reducing the risk involved in the creation of a new technology company.