Corporate Venture Capital — Here to Stay or Was This Just Another Wave Ebbing Away

5 min readMay 26, 2020

Given the Covid-19 crisis and its severe business implications in many industries, corporations have started scrutinising their corporate venture capital (CVC) activities again. Is CVC here to stay this time or has this been just another CVC wave that is about to ebb away?

I argue their are several good reasons why corporations must continue engaging in venture capital activities and that CVC is here to stay.

The Why

Generating Financial Returns

CVC units can provide their corporate sponsors with “attractive” financial returns. And the CVC units need to generate such financial returns if they do not want to lose corporate support and their right to play. But even more important than “attractive” financial returns is the strategic value that CVC units can generate.

Detecting Long-term Industry Trends

Professional corporate venture capital investment teams engage deeply with all players in the startup and innovation ecosystem, including founders, business angels, institutional and other corporate investors as well as intermediaries and industry experts. By constantly being in touch with people working on innovation topics in the relevant industry, investment teams detect long-term industry trends early on. This is especially true for CVC units that also focus on investing in early stage companies.

The knowledge gathered by investment teams is communicated to the relevant business units within their corporations (e.g. innovation, digitization, strategy and/or M&A departments) so that their corporate sponsors can respond to these industry trends correspondingly, for instance by adjusting their R&D activities, product offerings or the go-to-market strategies.

Exploring New Markets, Industries and Geographies

CVC activities offer the possibility to invest in innovative companies active in new markets, industries or geographies and thereby enable corporations to explore relevant new business opportunities. On the basis of the respective learnings, the corporations can then decide whether or not to further pursue activities in this regard.

Becoming Aware of Potential Disruptions and Disruptors

Investment teams notice if founders are working on new (digital) business models or are using new (digital) technologies that may completely change how business is done in industries. Therefore, CVC units cannot only detect long-term industry trends but also potential industry disruptions and disruptors.

If investment teams have the mandate to invest under a broad investment focus, they can detect potential disruptors also if such disruptors are active in adjacent industries. A good example of a corporation that has repeatedly disrupted adjacent industries and continues to disrupt industries is Amazon.

Becoming the Disruptor or Investing in the Disruptor

If corporations learn about potential disruptions early on and if they are not held back by corporate inertia, they may also use this knowledge and become the disruptors themselves. Unfortunately, many of the big corporations may not be fast and agile enough to absorb new radical ideas and translate them into compelling value propositions and business models in a timely manner. Rather, they may be rigid in their thinking and actions and not open to changing industry trends and dynamics. In this case, a CVC unit may “at least” be able to invest in and capture a portion of the value generated by the disruptor.

Overcoming Corporate Inertia

However, if investment teams organize regular opportunities for corporate employees to meet founders, engage with portfolio companies and learn from the culture and mindset of start-ups, they may even be able to help their corporate sponsors overcome corporate inertia. Corporations can then combine the scope and capabilities of a big corporation with the spirit and heart of a small one, as Jeff Bezos put it in his 2016 letter to the amazon shareholders.

Facilitating Digital Business Transformation

Many big corporations have the not-invented-here-syndrome and a tendency to reject suitable external solutions to their internal problems. CVC units can help here if they continuously expose the corporation to top-notch external solutions provided by startups. Corporate employees may eventually agree to run pilots with the respective startups and realise that they may even better and faster cope with the digital business transformation challenges if they closely work with these young innovative companies.

Improving the Corporate Brand

By constantly engaging with young innovative companies, being present on respective fairs and creating value for startups and sponsoring corporations alike, CVC units can help improve the corporate brand. If a corporate brand can be established as a brand that stands for digital innovation, agile working methodologies, fast decision-making and cutting-edge technologies the respective corporation may better attract desperately needed digital talents.

Generating Commercial Benefits

Corporations that invest in startups can have a competitive advantage if they can leverage the corporate assets. Sometimes this can “just” be reduced to facilitating a cooperation between a portfolio company and the corporation. Such cooperation should preferably benefit both the startup and the corporation. But for the corporation, this may exemplary mean: a new customer, new business or a new channel and distribution partner. And from an even broader perspective, the corporation may also use such cooperation to support its ecosystem and enable its partners to move faster within this ecosystem.

Preparing M&A

Being invested in young innovative high growth companies can certainly also be a route to M&A. But, in my view, this strategic approach to M&A is sub-optimal and should be handled with care. If corporations invest with a M&A mindset, incentives may not be aligned anymore. For instance, while the corporation wants to acquire the company for the lowest price possible, founders and co-investors want to exit and sell the company for the highest price possible.

Conclusion

Given the strategic value CVC units can generate and especially the digital disruption threats and opportunities they can identify, corporations cannot afford to abandon their venturing activitie. In a business world where innovation needs to be top of mind and where industry dynamics can change from one day to the other, they will otherwise fail rather sooner than later.

While corporate venture capital is here to stay and corporations should stay on the path and continue investing in young innovative companies, the current crisis may certainly serve as a good opportunity to reflect on the CVC performance and organizational set-up. In this regard, I can recommend reading also what Iskender Dirik and Scott Lenet have published (on the “Why”, but especially also on the “How”).