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Corporate Venture Capital v Venture Capital

Corporate Venture Capital v Venture Capital
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Let's delve into the realm of Venture Capital and its intriguing dynamics. In the world of finance, individuals and businesses alike seek to invest their capital in diverse avenues—be it bonds, publicly traded stocks, or ventures in their infancy. When it comes to startups, this invested capital takes on the name "venture capital," with those investing recognized as venture capitalists. The outcome? They secure a stake in the startup's ownership, often represented as equity. Picture this: a venture capitalist invests 1 million Euros for a 20% stake in the startup, which translates to a pre-investment valuation of 5 million Euros, referred to as the "pre-money" valuation.

It's essential to grasp the inherent risk in such investments. These ventures are inherently precarious, as there's little recourse for investors if the fledgling company falters—a reality that contributes to a high failure rate. Yet, if fortune smiles on the endeavor, the rewards can be staggering. The return on investment for venture capitalists hinges on the upward trajectory of the company.

So, why is venture capital significant? It serves as a lifeline for nascent companies with minimal operational history, offering an alternative to conventional bank loans or debt instruments. Here, venture capitalists wield substantial influence in sustaining economic ecosystems, nurturing change, and catalyzing innovation.

The genesis of Corporate Venture Capital (CVC) dates back over a century. The year 1914 witnessed Pierre S. Du Pont's company investing in General Motors, laying the foundation for CVC. Since then, the world has undergone significant transformation, and CVC has surged to prominence, particularly within the last half-decade. Over this period, global CVC-backed fundings and transactions have tripled, culminating in a record-breaking $57 billion in 2019. However, it's noteworthy that CVC-raised fundings remain dwarfed by the $257 billion amassed globally in traditional VC-backed fundings during the same year.

Why do conglomerates opt to funnel resources into ventures fraught with risk? Corporate Venturing entails industry titans investing in cutting-edge startups. Operating similarly to angel groups and VC funds, CVCs extend their support across all startup stages. By acquiring equity stakes in these startups, CVC funds unlock competitive advantages while gaining access to novel ideas, untapped markets, and groundbreaking technologies. The motivations behind Corporate Venture Capital are dual-faceted, encompassing both strategic and financial objectives.

The "strategic" perspective entails using CVC to gain access to emerging technologies and spot acquisition prospects early in the game. CVCs strive to foster value not only for their corporations but also for the startups they back. For startups fortunate enough to secure CVC investment, the gains aren't confined to monetary infusion; they also bask in the corporate's industry acumen, administrative support, and an expansive network—the quintessential "smart money."

On the flip side, a "financial" orientation signifies CVC investments driven solely by financial returns, deviating from traditional VC funds. Differences between the two are succinctly encapsulated in a table provided below.

While these contrasts broadly differentiate traditional VCs from CVCs, nuances naturally abound. Experience reveals that CVCs distinguish themselves by striking a balance between financial prosperity and alignment with the startups they back. Consequently, startups gain not only investment but also strategic reinforcement from CVCs, spanning vast networks and customer bases. This synergy proves especially beneficial in the startup's nascent stages. For the corporation, the strategic investment facilitates introducing innovative products and solutions to the market—an objective that partnering and collaborating with startups significantly advances.

Corporate Venture Capital-as-a-service (CVCaaS)

Collective Campus provides large organizations with corporate venture capital-a-a-service offering - we manage both the end-to-end administrative and operational side of running a corporate venture capital fund for you. A successful fund requires the experience, knowledge, and deep networks that most corporates lack internally. Running a fund successfully requires the tracking of thousands of startups each year, meeting with hundreds, doing deep due diligence, and maybe investing in 5 to 10 per year. Having partnered 98 startups with corporates since 2017 that have raised US$200M and increased in value 6X, and having built a brand through our various content marketing initiatives, we are well placed to help your organization tap into the power of CVC.


Workflow Podcast

The WorkFlow podcast is hosted by Steve Glaveski with a mission to help you unlock your potential to do more great work in far less time, whether you're working as part of a team or flying solo, and to set you up for a richer life.

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To help you avoid stepping into these all too common pitfalls, we’ve reflected on our five years as an organization working on corporate innovation programs across the globe, and have prepared 100 DOs and DON’Ts.

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