Corporate venturing is the practice of directly investing corporate funds into external startup companies. This is usually done by large companies who wish to enter small but innovative startup firms. They do so through joint venture agreements and acquisition of equity stakes. The investing company may also provide the start up with management and marketing expertise, strategic direction, and/or a line of credit.
As a subset of Venture Capital, Corporate Venture Capital (CVC) was started due to the vast emergence of startup companies in the technology field. The main goal of CVC is to gain a competitive advantage and/or access to new innovative companies, which may become potential competitors in the future. CVC does not use third-party investment firms and does not own the startup companies it is investing in as compared to pure Venture Capital investments. Some of the biggest CVC players are Google Ventures, Qualcomm Ventures, Salesforce, and Intel Capital. There are other industries that CVCs are popular in as well, such as biotechnology and telecommunication companies. Currently, CVC has a fast-growing market influence, boasting over 475 new funds and 1100 veteran funds.
Unlike Venture Capital, Corporate Venture Capital strives to achieve goals both strategically and financially. A strategically driven CVC primarily aims to directly or indirectly increase the sales and profits of the venturing company by making deals with startups that use new technologies, entering new markets, identifying acquisition targets, and accessing new resources, while financially driven CVCs invest in new companies for leverage. This is often achieved through investment exits, such asS initial public offerings or the sale of a company’s stakes to interested parties. Both strategic and financial objectives are often combined to bring higher financial returns to investors.
Corporate Venturing Corporations may invest in startup companies in the following stages:
A startup firm can enjoy the large investing company’s industry expertise, prestigious name brand, stable financial standing, network of connections, and ecosystem of developed products. This relationship can even lead to a partnership between the CVC and its parent firm, which, in turn, can instantly boost a company’s value. For investing companies, CVCs serve as a gateway for the possible acquisition of smaller, innovative startups. With CVCs strategically and financially driven objectives, these capitalists can maintain their position as a market leader, even if there are small companies stealing the scene and overtaking the pioneering giants. One example of this is Snapchat and Instagram, which are now owned by Facebook.