Corporate Venture Capital helps businesses get investment from big corporates, in return for shares in the business.
“When you look at Corporate Venture Capital, chemistry and alignment are everything. Entrepreneurs that focus on that first and foremost are the ones that tend to do better later on.”
Tony Askew Founding Partner @ REV Ventures
Huge global firms, like Unilever, Microsoft, BP and Sky, all have Corporate Venture arms.
You must be sure that you and your Corporate Venture Capitalist align on your expectations and ways of working
What is Corporate Venture Capital?
Corporate Venture Capital (or CVC) is a subset of Venture Capital (VC). CVC funding comes from large corporates, who invest in smaller businesses that are relevant and beneficial to the parent group.
The corporate offers funding in exchange for a share in the business. As well as finance, the business can also access the expertise, network and contacts of the corporate group.
Businesses looking for CVC funding need to prove how they can help the big corporate through either market insight, market reach or innovative technology. Corporates will be aware of successful, disruptive businesses.
How is Corporate Venture Capital different to Venture Capital?
- Where the money comes from VCs are a third party who manage money on behalf of external investors. CVCs use money from the corporate to fund investments.
- Duration of the relationship VCs invest in fund cycles of up to ten years. CVCs often have shorter lifecycles.
- Time to finance VCs typically take 6-12 months to do a deal. With CVC, it can take around 2-3 months longer.
- Expertise and risk VCs can be investors by trade or they can have a sector background that means they understand the businesses they are investing in. CVCs however, are nearly always experts in your their field, which can have benefits and downsides for entrepreneurs. On the one hand, CVCs can bring vital know-how to a business, but entrepreneurs should also be aware that they are exposing their Intellectual Property (IP) or Unique Selling Proposition (USP) to a channel competitor.
- Why they’re investing A VC invests in businesses that will provide a financial return. When a CVC looks for a business to invest in, it considers ROI and whether the business will benefit its strategic capabilities. If the business won’t help develop its strategic capabilities, the CVC is unlikely to invest.
What are the benefits of Corporate Venture Capital?
You can access the know-how of a big corporate and learn from their teams and networks.
From distribution networks to experts to partners, you can meet the contacts to help you take your business to the next level.
You can broaden the reach of your product and service.
By working with experts, you can tap into further innovation to develop your offering.
The CVC will try to convince the corporate to purchase businesses with potential. For entrepreneurs looking for an exit, this can be very attractive.
What are the risks of Corporate Venture Capital?
Equity and growth
You are giving away a share in your business in return for finance. There is no guarantee that your business will grow and succeed because of the investment.
Intellectual Property (IP)
You are exposing your IP to a third party. You need to be comfortable that you have adequate IP protection.
Is Corporate Venture Capital right for you?
About your business
|Annual turnover||Depends on the business|
About Corporate Venture Capital
|Purpose of finance||Acquisition, research and development|
|Amount of finance||£1m+, depending on business|
|Duration of finance||3-5 years|
|Cost of finance||None|
|Time of finance||6-12 months|
Ask an expert: how do I choose the right Corporate Venture Capital deal?
Tony Askew @ REV Ventures
- Do your research on the firmWhat’s their track record like? How long have they been around and how many businesses do they invest in? What is their commitment to their businesses?
- Make sure you are alignedBe certain that the investment team has the same views on the relationship as you do. Make sure they have the same ideas about how long the relationship will last. Ask your lead investor how they are compensated and check that it is linked to your success – that will tell you how committed they are to your business.
- Think beyond valuationSelect the right partner, rather than choosing an investor based on a big valuation or because they are the first person who approached you.
- Terms of the deal You must be very clear about what you’re giving up and what you’re getting in return, especially where blocking rights and IP clauses are concerned.
- Close commercial interests Because the corporate has similar interests to the business, you must be sure that you are working with someone that you trust, so as to protect your IP.
- Revolving door Be aware of ‘corporate roles’ and the potential that your lead investor may be planning the next move of their career at the corporate, rather than focusing on your business.
- Complex negotiations Because there is a crossover of interests between the CVC and the business, you should be prepared for a longer negotiation period and quibbles over small details
How do you get Corporate Venture Capital funding?
- Both CVCs and entrepreneurs can make the first approach; accelerators and meet-ups can be particularly helpful
- It often takes up to a year to do the deal, but this can differ
“All well-run CVCs have tremendous outreach, they map markets and go along to meet-ups. And entrepreneurs, if they’re doing it right, are doing their homework.”
|Tony Askew REV Ventures|
What's your next step?
Why do Corporates invest in businesses?
There are lots of reasons why CVCs look to invest, but three of the biggest drivers are:
- Can the business help the corporate understand how the market is innovating?
- Has the corporate spotted an opportunity to help the business distribute its product and increase its reach?
- Will the business help the corporate innovate with cutting-edge technology?