Corporate venture capital (CVC) is the practice of investing corporate funds in external start-up companies. CVC can offer a toolkit to corporates to engage and collaborate with startups in different forms of events, partnerships, accelerators, investment, M&A pipeline and many benefits for both the investing firm and the start-up, such as access to new technologies, markets, resources, and customers.
Here are the reasons why corporates should collaborate with VCs to start a CVC:
1.Gain access to the expertise and network of VCs: VCs have extensive experience in identifying, evaluating, and supporting start-ups in various stages of development. They also have a wide network of contacts and relationships with entrepreneurs, investors, mentors, and industry experts. By collaborating with VCs, corporates can tap into these valuable resources and learn from their best practices. For example, Siemens Venture Capital (SVC), the CVC unit of Siemens AG, has invested over 800 million euros in more than 150 start-up companies and 40 venture capital funds since its inception in 1999. SVC has benefited from its collaboration with VCs by gaining access to their deal flow, due diligence process, portfolio management, and exit strategies.
2. Balance the strategic and financial objectives of CVC investments:
Corporates often pursue CVC investments for strategic reasons, such as learning about disruptive business models, gaining access to new products or services, creating options for future acquisitions, or growing demand for core businesses. However, these strategic objectives may not always align with the financial objectives of generating returns across a portfolio of investments. By collaborating with VCs, corporates can ensure that their CVC investments are not only aligned with their strategic goals but also have a clear path to profitability and scalability. For example, Google Ventures (GV), the CVC arm of Google LLC, has invested in more than 500 companies across various sectors and stages since its launch in 2009. GV has achieved both strategic and financial success by collaborating with VCs who share its vision and values.
3. Enhance their innovation capabilities:
By investing in startups, corporates can tap into the creativity, agility, and risk-taking culture of entrepreneurs, and learn from their successes and failures. CVC can also help corporations identify and acquire emerging technologies that can complement or disrupt their core businesses and gain a competitive edge in the market. For example, Microsoft & OpenAI: Microsoft's strategic investment in OpenAI, the company behind the groundbreaking language model GPT, has accelerated its development of AI-powered products and services. This collaboration has led to the integration of OpenAI's technology into Microsoft's Azure cloud platform and the development of new AI-powered tools for developers and businesses. This has strengthened Microsoft's position in the AI market and fostered a culture of innovation.
4. Foster a culture of innovation and experimentation within the corporate organization.
CVC can help corporates overcome the challenges of innovating in a large and complex organization, such as bureaucracy, risk aversion, silos, and inertia. By collaborating with VCs, corporates can expose their employees to the entrepreneurial mindset and culture of start-ups, which can inspire them to think creatively, act quickly, and embrace failure as a learning opportunity. For example, Salesforce Ventures (SV), the CVC arm of Salesforce.com Inc., has invested in more than 400 companies since its inception in 2009. SV has created a culture of innovation within Salesforce by engaging its employees in various activities related to CVC investments, such as mentoring start-ups, hosting events, sharing insights, and co-creating solutions.
5. Attract and retain talent:
By engaging with startups, Corporates can foster innovation and learning by engaging with startups and exposing employees to new ideas and skills. CVCs can help recruit top talent from the startup ecosystem, offering career opportunities and incentives that match or exceed those of traditional venture capitalists. For example, in January 2014, Google acquired Nest Labs for $3.2 Billion. This acquisition not only provided Google with a foothold in the smart home market but also brought in a team of talented engineers and designers.
6. Expand their market reach and customer base:
By partnering with startups, Corporate venture capital (CVC) can help corporates access new markets and segments by partnering with startups. CVCs can also understand customer needs and preferences, tailoring products and services accordingly. Intel Capital, Intel's CVC arm, has invested in companies like Flipkart, Snapdeal, and Yatra, enabling the company to enter India's rapidly growing e-commerce market.
In conclusion, corporates should collaborate with VCs to start a CVC unit that can offer them many advantages over pursuing CVC investments alone. Selecting the right VC partner is crucial for a successful CVC initiative. Corporations should consider factors such as the VC firm's investment focus, track record, expertise, and cultural fit. If you would like to explore more about CVC, Significa Ventures offers corporate clients a professional service that simplifies the investment in and management of startups, while seamlessly handling the entire engagement process on your behalf, hassle-free. Connect with us at this link.
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Sources:
THE NEXT BIG THING TO BOOST YOUR INNOVATION – THE VENTURE CLIENT MODEL Capgemini and MIT
Making Corporate Venture Capital Work by MIT
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