Many successful startups have made use of a few stages of corporate venture capital funding. When venture funding comes from corporations whose primary purpose is not venture investing the funding is known as corporate venture capital.
At the Global Corporate Venturing and Innovation (GCVI) Summit in January 2016, Kashyap reported that Corporate Venture Capital (CVC) is involved in 25% of venture capital deals and that 85 new Corporate Venture Capital funds were launched in 2015.
However, startups need to be careful with provisions in Term Sheets. According to an HBR article “The median life span of corporate venturing programs has traditionally hovered around one year”
Stages of corporate venture capital funding
The stages of startup business growth that corporate venture capital funding invests in are not always the same. Here is a generic list:
Where investors provide capital funding for a product or startup in its very early stages. This is useful to develop prototypes, set up the basics of a business and attract other investors. Seed capital is usually a comparatively small amount of money; perhaps $100,000 – $500,000. Investors may be angel investors or those corporate venture investors who invest in early stage. Financial venture capital firms are less likely to be involved.
Just a bit further on from the seed stage, startup capital is gained after a useful product prototype and business plan has been developed. This money is usually used to gain employees, buy marketing and attract customers.
First stage capital
This funding is specifically earmarked to develop growth and foster profitability once the startup stage has been completed. This is used to make or manufacture the product, target sales and increase advertising. This is usually where larger amounts or money are required.
Second stage capital
This is often years after launching and is often used to expand into overseas or bigger markets. It is also the time when new product lines can be developed and produced, but is only viable when it is shown that the first stage has been an unqualified success.
If the company is looking to go public there is a lot of work to be done. Acquisitions and mergers, financing and adjustments for example. Part of the funding at this stage is generally used on lawyers and auditing to ensure the company is fit for its IPO or acquisition exit.
Corporate venture capital funding can work for nearly every startup at many different stages.