Corporate Venture Capital
Similar to venture capital (VC), corporate venture capital (corporate VC) relates to equity investments undertaken by a corporation (or its separate investment entity) into small, innovative and scaleable businesses. Where VCs provide funding in the way of one single equity investment, for corporate VCs, due to the resources available, the initial equity investment is the tip of the iceberg. Often, debt funding can be offered by corporates, as well as crucial access to the corporate’s marketing and distribution channels.
Corporate VCs act in a similar vein to VCs or business angels in providing knowledge transfer and general strategic or business support. It is important that your business’s values and aims are aligned with the corporation.
The objectives of a corporate VC share some similarities with normal VCs, namely that the investment provides some form of financial return. However, another key objective is the corporate VCs see their investment as a way of developing the strategic capabilities of their corporation i.e. it provides an entrance into a market that your private company might be servicing.
Typical Investment Size: £500,000 - Millions
Stake: Minority stake, with potential for a majority stake
Involvement Timeframe: 5-10 years
ADVANTAGES
DISADVANTAGES
Can be a cheap form of finance. Many venture capitalists don’t expect dividend returns, but rather a capital gain.
Corporate VCs can offer strategic guidance to your business and will also provide access to key distribution channels.
Provides confidence in your product which can help with gaining additional funding from the bank.
Entering into a venture capital agreement with a corporation may lead to an acquisition by them further down the line, providing you with an exit strategy.
Dilutes the founder’s ownership of the business.
The process can be costly, demanding and time-consuming.
It is crucial that your culture and strategy fits with the corporation who owns the corporate VC. This may be difficult to align.
Corporate VCs can be challenging due to the financial and strategic objectives of the fund.
PLEASE NOTE:
This document is intended to be an aide-mémoire to help you consider different forms of finance and which ones might be appropriate for your business; it is not a comprehensive guide to all forms of finance. There could be different tax and legal implications associated with different forms of finance. Professional tax and legal advice should be sought to prepare for these different forms of finance.