What is Corporate Venture Capital?
Corporate venture capital (CVC) is a form of financing that allows startups to enter into a partnership with major corporations. This typically involves them receiving seed capital, equity, or loan guarantees from the company they partner with, as well as access to certain resources and networks that may not otherwise be available to them.
Why do startups partner with corporations?
Typically, Fintalent’s Corporate Venture Capital Consultants would advise companies to partner with startups when they have a market opportunity. This means that the company thinks that it can survive and make money off of its product or service, while the startup will be able to get its idea off the ground and build its business. When a startup that has selected this type of funding approaches corporate investors with their business plan, they will typically be receptive to the opportunity and offer them money or equity in return for taking part in the venture.
Why do corporations partner with startups?
Many companies partner with startups due to similar market opportunities as discussed previously. That is, they think they can make money off of the startup’s product or service. They will usually partner with the startup to take advantage of the market opportunity while at the same time receiving some portion of any profits the startup makes.
Most startups use CVC money to develop their idea and get it off the ground before graduating to other forms of financing. The CVC funding will usually be used to test out prototypes, build out a sales team and launch a website to get potential customers interested in their offering.
What does corporate venture capital involve?
Many Internet startups have discovered that a major source of internal funding for them is taking on corporate venture capital as partners. The major benefits to corporate venture capital include the following:
Corporate venture capital provides access to major network connections and expertise that can be difficult to attain in the early stages of a business. This includes access to information on customers and potential customers, as well as experts who have been successful in the past. Because corporate venture capitalism is a partner-based model, companies will provide additional resources that may not have otherwise been available to the startup, including marketing experts and access to financial resources.
This type of funding requires a bit more diligence on behalf of startups than others. For example, startups need to keep track of their performance against milestones while they are under contract with their partner. They also need to continue to impress their CVC partner in order to keep the contract option open. This can be difficult at times, especially when startups get eliminated from the competition. However, many Corporate Venture Capital firms have specific programs that will help startups succeed, and with these programs they are able to maintain a high level of success.
What are the benefits of corporate venture capital?
Corporate venture capital provides startups with access to resources and expertise that they may not otherwise have had access to without this type of financing. In addition, it allows them more time for development, which means that they can refine their idea and bring it more sophisticated before looking for funding from other sources (outside investors).
Unfortunately, corporate venture capital programs are limited. That is, companies will typically only provide funding to one startup or small group of startups per year (depending on the specific program). This means that startups have to compete with one another in order to get their business off the ground.
What are the disadvantages of corporate venture capital?
For starters, it limits the number of startups that can benefit from CVC each year. This means that it is difficult for many businesses to secure this type of financing, especially since they will need to compete with other startups in order to do so.
Some companies will only provide a limited amount of funding to startups – even if they think that this type of funding is exactly what the startup needs. This means that startups will have to compete with one another in order to get their funding. In addition, corporate venture capital programs require specific upfront payments from the startup in order for them to be eligible for annual funding. These payments can add up quickly, which increases the amount of cash that startups need at an early stage of development. This is a common complaint for many startups that use this form of financing – they often find themselves in a Catch-22 situation wherein they are forced to take on more debt than they would like, but need more money in order to build their business further.
Another disadvantage is that corporate venture capital contracts are often limited to a specific time period, after which the startup must move on to other forms of financing. For example, if a startup is only able to get a contract for one year they may not be able to find another source of funding (outside investors) in order to get themselves out of the contract early or obtain more funding.
Is corporate venture capital right for me?
You should evaluate each project as it is significant in terms of value and risk. If you’re considering corporate venture capital and believe you have a market opportunity that will pay off, then this can be an ideal option for funding your business.
