Corporate venture capital describes a wide variety of equity investment from a corporation, or its investment entity, into a high-growth and high-potential, privately-held businesses.
What is corporate venture capital?
Corporate venture capital (CVC) functions in principle in the same way as other forms of venture capital, but the finance is usually provided by non-financial companies or large conglomerates with a specific goal or sector focus.
CVC performs a key economic role – the identification and nurturing of the innovative businesses of the future.
What's the difference between corporate venture capital and venture capital?
In regular venture capital firms, the partners raise funds from institutions such as pension funds, banks, university endowments or family offices. In contrast, CVCs are large corporations that set aside a certain amount of cash to invest in start-ups and scale-ups in different phases of their development for a number of reasons – one of them being that they don’t want to miss the boat on the next big thing.
There are advantages and disadvantages to both venture capital models and business owners should consider, and take advice about, whom they want to bring on board on their journey (or whether a mix of both would be beneficial).
Understanding corporate venture capital
CVCs have a number of key differences to the regular venture capital model. These differences vary from one CVC to another, but the formal and direct relationship between the business and the CVC is usually three-fold.
- will make a financial investment in return for an equity stake in the business;
- may also offer debt finance to fund growth activities for an agreed return; and
- may offer non-financial support for an agreed return, often linked to their specific sector expertise, such as providing access to established marketing or distribution channels, or knowledge transfer.
It is important that the corporation’s aims are aligned with those of the business receiving the investment.
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