Venture capital is often referred to as an apprenticeship business because so much important learning comes from day-to-day experiences. Yet, as an article published by the Business Development Bank of Canada (BDC) explains, you can shortcut the learning process by learning from experts: “Your learning curve can be shorter—and your results better—if you learn from pros who’ve already mastered key … ... read more
Making Sense of Why Corporate Venture Capital is Booming
Corporate Venture Capital (CVC) has experienced momentous growth in recent years and this is why more CVC teams are emerging as big players in venture. According to a report by BCG, the percentage of Corporate VC investments as a share of global VC investments grew 30% from 2012 to 2017 and the global number of active CVCs tripled between 2011 and 2019.
Yet Corporate Venture Capital is still largely misunderstood. Many startups dismiss the option of CVC funding due to false preconceived notions. And many institutional VCs don’t appreciate the value of forming relationships with Corporate Venture Capitalists. According to the BCG report, the percentage of global VC deals that included Corporate VC investors remained relatively stagnant at 11% from 2012 through 2016 and rose ever so slightly to 12% in 2017.
Both entrepreneurs and institutional VCs are doing themselves a disservice by dismissing the value of forming strong relationships with CVCs. Corporations that successfully maintain Corporate Venture Capital relationships can be incredibly successful and blend the benefits of established businesses and young companies. Here are four resources to help you become more familiar with CVC and to convince you of the advantages of forging strong relationships with CVCs.
1. The History of CVC
To understand Corporate Venture Capital, it’s important to first get yourself grounded in historical context. CBInsights’ report, “The History of CVC”, is a great jumping off point. It begins with a discussion of how business giants GM and DuPort planted the seeds of the CVC industry. Did you know that CVC’s origins can be traced back to DuPont investing $25M in GM—a private six-year-young startup at the time? Dupont believed that, by accelerating GM’s growth, it would fuel demand for DuPont's plastic, paint, and other products.
The report follows with a detailed overview of the four major waves of CVC. It explains that the first wave (1960-1977) was prompted by a push for diversification that resulted, in part, from antitrust enforcement in the aftermath of the Great Depression. The second wave (1978-1994) was incited by the release of personal computers. Large corporates didn’t want to miss out on tapping into the new technology. The third wave (1995-2001) was motivated by the dot com boom and the birth of the internet. Large corporations began to realize the limitations of driving innovation internally and begun to explore CVC as a way to outsource some of their R&D investments and get access to innovation capital. The fourth and final wave (2002-present) was incited by the bubble burst. CVC lost momentum during the early 2000s and during the global financial crisis but has recently experienced a resurgence, fueled by the rise of social media.
"The nice thing about corporate venture capital is that it lets you grow your commitment as the experiments pan out. ”
CBInsights’ report is comprehensive and replete with vivid case studies. It's an engaging read that will get you quickly up to speed on the origins of CVC.
2. Corporate VC vs. VC
While there are tremendous synergies, CVC is starkly different from institutional VC. It’s important to understand the core differentiation. A 2016 LinkedIn post by Rita Waite, a senior analyst in growth strategy and investments at Juniper Networks, is your go-to resource for understanding how CVC compares to traditional VC. It lays out the major differences between the two industries, including differences in fund objective, investment stage, follow-on investment, control level, and exit options.
One of the most valuable parts of Waite's post is the fact that it outlines the synergies between CVC and institutional VC. It explains that CVCs and institutional VC complement each other. Waite explains, “Corporate VCs provide startups with in-depth industry knowledge and access to potential customers, while Institutional VCs are experts in building companies and driving financial results.” She emphasizes that the funding choice is not mutually exclusive. Startups can benefit from exploring both funding options simultaneously. And institutional VCs can benefit from partnering with CVCs.
3. Making Sense of CVC
Success rates among CVC differ widely. Some companies such as Intel and Microsoft have a strong track record of success. Others have not been successful with venture capital, or have refrained completely from engaging in Corporate Venture Capital. What factors cause companies to successfully engage in CVC? The Harvard Business review article, “Making Sense of CVC”, is one of the best resources for making sense of CVC. It offers a comprehensive overview of the factors that motivate successful CVC investments.
While the HBR article is intended to help corporation evaluate CVC as a tool for growth, it, arguably, offers even more value for institutional investors and startups. It details what motivates corporations from injecting CVC capital into startups. In reading it, entrepreneurs learn how to position their companies so that they whet the appetites of CVCs. To be successful, entrepreneurs need to understand whether their company aims to grow the CVC's parent company's current business (by, for example, promoting a standard, stimulating demand, or leveraging an underutilized technology) or whether it aims to grow future businesses (by, for example, experimenting with new capabilities, developing a backup technology, or exploring strategic whitespace).
After reading the HBR article, you'll come away with a newfound appreciation for CVC. Whether you’re a VC or entrepreneur, you'll emerge with new insights in terms of the value of forging strong partnerships with CVCs.
4. Why Some Companies Prefer Corporate Venture Investments
There are a lot of advantages to corporate venture investments. One of the main reasons it is nice to have a CVC in your investor mix and even on your board is that often they are tied to an incredible network of Fortune 1000 operators.
Additionally corporate venture capital firms often look for longterm relationships and partnerships with their portfolio. It is not just about money, it is about how their businesses can be intertwined. This can me seen in a CVC leveraging a startup's technology and bringing it to corporate or helping close the next big deal through their executive relationships.
5. The Top 20 Corporate Venture Capital Firms
There are nearly 2000 corporate venture firms in existence and many are first time investors. Corporate venture capital participated in 3,234 venture deals last year, worth a record $57.1 billion, according to CB Insights.
Ready to make the leap and engage with Corporate Venture Capital? CBInsights's report, "The Most Active Corporate VC Firms Globally" will help set the wheels in motions. It highlights the top CVC firms today, their notable investments, and how the rankings have changed over time. The report will help you get up to speed on the current state of the land. It's changing quickly! 186 newly active CVC arms invested throughout 2017. Do you know which CVC is most active? Hint: it’s not Intel Capital.