Entrepreneurs are turning to Corporate Venture Capital (CVC) to bring their ideas from concepts to successful startups. The number of big companies being created for fund startups has been growing at an exponential rate. Companies such as Google and Dow are creating venture funds to help entrepreneurs get their ideas off the ground. CVC is becoming the most popular way to fund new companies. To understand how CVC is changing the world of startups, it’s important to know what it is and how it can help your company grow.
CVC’s are a great funding opportunity for companies. A CVC is basically corporate funds from large companies that are use to fund startup ventures. These startups include companies that have already formed as an offshoot of a larger business. The degree in which in the startup and investing company are linked varies. For example, a technology company will invest in startups in that same field. The main objective of the investing company is a financial return. Corporations want to do well, if not better than, traditional investors. CVCs are exploratory in nature. They want to see what the startup companies can come up with. If the company proves to be successful, they investing company might adopt the startup venture. This means that the startup could be a branch of the larger company. So what else can a startup hope to gain by getting CVC funding?
Companies who get funded by a CVC have advantages of having support from the larger company. Startups can receive knowledge of infrastructure, scale, and insider information about their field. The connection between a startup and large company is advantageous. It’s more than just cash that startups can receive from CVCs.
There are four types of CVC investments startups need to be aware of.
- Driving Investments: This investment is aimed at creating a close link between the investment company and the startup. The strategy is to advance to the investor’s current business by getting involved with a startup.
- Enabling Investments: This type follows the same strategy as above, but the goal is not to have a close link with the startup. This investment is about the startup becoming independently successful. The goal of the CVC’s involvement is the create hype and demand for the product.
- Emergent Investments: If a CVC makes an emergent investment, they are investing in technology that can create new markets. Or they want to be involved with a market that is starting to become viable/successful. Emergent investments are aimed at financial gains.
- Passive Investments: A passive investment does not connect to the CVC company or its operations. This type of investment is not that different from standard investments made by individual companies or investment firms. Passive investments by CVCs are rare.
The world of CVCs is expanding to many companies worldwide. They are seeing the short and long-term value of investing in startups. Not only can they corner new markets but they can help others small companies get a leg up on the ladder to success.