What is corporate venture capital? Seeking mutual growth

Still don't know what a 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).

In essence, the Corporate Venturing is to establish structural partnerships with external companies or parties to drive mutual growth. These external companies are start-ups (early stage companies) or expansion stage companies (companies that have found a suitable product/market) that come from outside the organisation. 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

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

When is it more 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.

​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).

• 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).

How To's Relacionados

• Medium
• Harvard Business School