What is Corporate Venture Capital?
Corporate venture capital is an existing business utilizing venture funding to further the company’s strategic objectives. The firm takes an equity stake in startups either through an internal fund or off the corporate balance sheet. Unlike traditional venture capital, corporate VCs look to gain a competitive advantage for the company and not a financial return. The firm seeks to grow its business and uses investment in a startup to gain knowledge of an emerging market, identify key players in the industry, and potentially use the results to grow sales. These initial investments often lead to a buyout of the startup. The investment is a useful tool for diligencing a startup and influencing its direction.
There are some corporate VCs investing for a return on investment rather than strategic initiatives, but this is rare. Most corporate VCs make investments with the goal of winning more business for their current product and services. It’s a useful method for exploring new markets without committing substantial resources from the corporation.