At its simplest corporate venture capital (CVC) is the way that corporations invest in startups and businesses that will eventually be of benefit to the investing company. An example might be a large refrigeration company providing financing to a new robotics startup that is developing a robotics system, that might revolutionize the manufacture of air conditioner compressors.
Some companies are committed to venture capital programs which can grow their own businesses significantly if handled correctly. Others invest in unrelated environmental and social good startups as part of their commitment to fostering change or to fill their charitable quota.
Corporate venture capital
Depending on the mix of strategic and financial objectives; there are four primary ways that corporate venture capital can be used to fund a startup.
Passive investment
Where the investing corporation does not benefit in any way except through shares in the new company. Not a first choice for most corporate investors.
Emergent Investment
Where the bigger company invests in startups that may possibly benefit the investor in the future if the strategy or focus of the business changes, but doesn’t at the time of the contract being signed.
Enabling investment
By investing in a product or service within the same community, the investor hopes to stimulate growth and sales across the whole field, however the startup being funded may not have a direct link to the investing company.
Driving investment
The most common type of corporate venture capital investment. Investing in new startups that will make or produce something to directly benefit the investors business while ideally becoming strong in the market to increase the investors shares and wealth.
Conclusion
Investors are more likely to use enabling and driving investments when the economy is low or rocky, whereas passive and emergent investment is generally only seen when the markets are high. Very large companies with an extensive portfolio will often have multiple investments across all four areas.
Well managed corporate venture capital investments can increase profits significantly; large successful companies are no longer looking inwardly to achieve best results.
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