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New Trend: CVC's Defined
Creating a Corporate Venture Capital (CVC) arm for F100 companies has become a mainstay strategy for growth. What is a CVC?
Like a Venture Captial (VC) firm, a Corporate VC or Corporate Venturing, is about investing a minority stake in startup companies at almost any stage to access new technologies, new markets, and new leading edge skills. CVC make these investments for many reasons, such as:
short term advantages of access to a startup’s leading edge solutions
potential financial returns
strategic transformation or diversification
possibly, for an option to acquire the startup in the future
CVCs typically invest for strategic alignment that brings value to the startup. The CVC’s investment is enhanced because the corporation invests their know-how in an industry, manufacturing, or other specialized area where the startup’s business is focused. The relationship between the startup and corporation produces more value than either could on their own.
New Insight: 80% of S&P 500 Companies don't have a CVC
In the past, CVCs were connected to blue chip companies who needed to “stay ahead” of their competition. The first CVC was created in 1914 by DuPont’s investment in General Motors. Today, the CVC market is still small but growing. The value of CVC-backed deals more than tripled to $57.1b in 2019 from 2014, according to CB Insights. Yet while the number of corporate venture arms has also grown, more than 80% of S&P 500 companies still do not have a dedicated CVC arm.
In today’s era of unicorn funding and outside public exits, CVCs have benefited from being in the right place at the right time with amazing financial returns alongside the traditional VCs. However, CVCs need more than that. They need the operational and strategic alignment that moves their business to the future. That is leading CVCs to make more “small strategic bets” than in previous years and increase the focus on creating core business value.
New Action: Engage Startups on the topic of Co-Creation of Value
It’s time for corporations to consider engaging startups in a conversation about co-creation of value.
Is your company working with startups and are they growing as a result of your relationship with them?
Do you have a capability to help startups while and to create value on both sides - for you and them?
Do you have a portfolio of startups already working with your company that could be part of this conversation?
Do you have a process to engage startups in an equity transaction?
If you need help answering these questions or want to know more about starting a CVC, we would be happy to speak with you. Contact us today!
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