What is the Role of Corporate Venture Capital?

What is corporate venture capital? Corporate venture capital, or CVC, is a subset of venture capital provided by corporations to early-stage, high-growth potential companies. The role of CVC is to help the corporation secure a piece of the company's equity and provide mentorship and resources so that the company can grow and be successful.

There are many benefits of corporate venture capital but also some drawbacks. So let's take a closer look at the corporate venture capital definition and what it can do for your business!

What is corporate venture capital (CVC)?

Corporate venture capital is a type of investment a corporation makes into a startup company. The main goal of corporate venture capital is to generate new technologies or products that the investing corporation can use. 

corporate venture capital definition

There are many benefits of corporate venture capital. One benefit is that it allows corporations to invest in early-stage companies that may be too risky for traditional investors. This can help the corporation gain a competitive edge by getting access to new technologies and products before its competitors. 

Another benefit of corporate venture capital is that it can help build relationships between the corporation and the startup company. These relationships can lead to joint ventures, licensing agreements, or other partnerships. 

There are also some drawbacks to corporate venture capital. One drawback is that the corporation may have difficulty exiting the investment if the startup company is not successful. Another potential drawback is that the corporation may not have control over how the startup company spends the money that it has invested. 

Corporate venture capital can be a great way for corporations to invest in new technologies and products. However, some risks should be considered before investing.

How does corporate venture capital work in practice?

In theory, corporate venture capitals are a way for large companies to invest in small startups with innovative products or services that could benefit the larger company. The thinking is that it's better to invest early in a potential partner or competitor than to wait until they become too big and difficult to acquire.

CVCs typically invest smaller amounts of money than traditional VCs. They may also structure their deals differently, often taking a minority stake in the company instead of seeking majority control.

Benefits of corporate venture capital include access to large companies' resources and knowledge and the potential for a lucrative exit if the CVC's parent company later acquires the startup.

benefits of corporate venture capital

Who decides to invest in a CVC deal? 

The CVC decision makers are typically a group of high-level executives within the corporation. 

This group is often referred to as the "CVC Board." The members of the CVC Board are usually from different functions within the company (e.g., R&D, marketing, finance) 

And they have different levels of experience with venture investing. 

The CVC Board typically meets monthly or quarterly to review deal flow and make investment decisions. 

CVCs usually have dedicated staff who work on sourcing, evaluating, and executing investments. 

These investment professionals are often former venture capitalists or entrepreneurs with relevant domain expertise. 

The CVC team typically works closely with the corporation's business units to identify investment opportunities aligned with the company's strategic objectives. 

Once an investment is made, the CVC Board members and staff work closely with the portfolio company's management team to help them grow and scale the business. 

CVCs typically have a seat on the board of directors of their portfolio companies, and they provide active support to help the portfolio companies achieve their milestones. 

CVCs typically invest in early-stage companies but will also make later-stage investments if there is a strategic fit. 

CVCs generally invest between $500K and $20M per deal, but they will do larger or smaller deals if warranted. 

CVCs typically take a board seat on their portfolio companies and prefer equity investments, but they will also do debt and convertible note financings. 

corporate venture capital

How do you get started with corporate venture capital if your business is interested in it?

You must first identify and assess which opportunities make the most sense for your company to get started. There are a few key questions that you should ask yourselves during this process:

  •  What is our strategic objective?
  •  What type of corporate venture capital would best help us achieve our objectives? 
  •  How much are we willing to invest?
  •  What is our time frame for returns? 

Answering these questions honestly will help you and your team create a focused CVC strategy. Once you have determined which opportunities to pursue, the next step is to find the right corporate venture capital firms to partner with. 

Corporate venture capital is an important tool for businesses of all sizes. Corporate venture capitalists can help drive innovation and create new opportunities for their companies by providing the resources that small businesses need to grow and scale.