The startup ecosystem is now getting funds from big corporate by the way Corporate Venture Capital (CVC), the investment funds come from the corporate houses to meet their strategic technology requirement, and to gain the financial benefit from the StartUps ecosystem.
The big US-based technology companies like Google, Microsoft, Intel, Salesforce Ventures, etc, developed their own CVC funds to invest in the startups, as a part of their business strategy, and get strong financial return from these investments.
The US Corporate Venture Capital (CVC) investors double the value of deals they participated with a new milestone investment of $60 billion by 1,065 deals, in 2018.
The CVC funds invested in early 2008-12, now make profitable exits; the ratio of success is higher than non- CVC funded startups. The Corporate Venture Capital investment is the best option for startups to success than traditional venture capital funding.
Corporate Venture Capital (CVC) activity overview
The corporate houses which are hungry for the innovation and needs continuous improvement in their products and technology to retain their market has started investment in the technology-based startups that meet their requirement. Most CVC are investing in startups that best fit with their parent company’s technology needs in the future.
Some Corporate Venture Capital like soft Bank-supported is investing in startups to gain financial benefit. The trend of Corporate Venture Capital (CVC) investment is continuous in 2019 also, as investment made in 2018.
S&P 500 companies like Microsoft, Hp, Amazon, Abbott, Cigna, Cargill, Hitachi, 3M, etc, became started its CVC to fulfil their future technology demands. These CVC funds mainly focus on the technology demand of their parent companies and invested in the startups that provide solutions based on artificial intelligence, machine learning, and IoT. Corporate-supported Corporate Venture Capital gives high valuation to innovative research-based startups than the conventional venture capitals.
Corporate Venture Capital investors are gradually increasing stack in the startups with a comparatively high valuation to achieve the targeted goals of innovation. CVC works like the co-founder of the startups and provides all back supports from technology, infrastructure, and finance.
In 2018, Us-based Corporate Venture Capital investors led six investments in notable unicorns Lyft, Grab, Opendoor, UiPath, Lime and Convoy.
It is also observed that Corporate Venture Capital funded startups are take-over by parent companies with large valuations. Founders of startups become part of the team of the parent companies.
Performance measurement of CVC investors
Most of the active Corporate Venture Capital are balancing their role in strategic investment and financial goals. The Corporate Venture Capital mostly funded the R&D functions, to take both strategic as well as financial benefits.
One study found that 64% of corporate started CVC to achieve their strategic motives, while 36% started Corporate Venture Capital to gain financial benefits from investments. In another survey observed, that 66% of Corporate Venture Capital investors have both purposes strategic and financial, while 26% being strategic only and 8% have financial only.
Corporate Venture Capital (CVC) invested intending to get innovative technology for the parent company. To achieve this goal, most CVC invests enough money in the selected startups.
Difference between CVC and conventional venture capital funds
As earlier mentioned, Corporate Venture Capital (CVC) has combined goals of strategic investment to develop innovative technology to boost present market products of their parent company and financial, while conventional venture capital (VC) invests with a clear vision of financial value creations from the investment.
CVC mostly has a sector-specific approach, while venture capital (VC) is investing in more extended sectors to create value from different business ideas.
Corporate Venture Capital invests in the R&D activities and provides incubation to the sector-focusing startups while traditional Venture Capital invests in the verity of sectors and provides only financial support.
The success ratio of startups backed by Corporate Venture Capital has much higher than traditional venture capital (VC) invested startups.
CVC Investments in India
Microsoft’s corporate venture fund M12 made its first investment in India with $10 million funding to Healthcare data analytics startup Innovacce.
Google started its incubation centre Launchpad Accelerator India in Bengaluru, to incubate selected 10 Indian startups each year and provide Seed funding. Google made its first direct investment in Bengaluru-based delivery startup Dunzo. Google also invested in Indian healthtech startup Practo.
Microsoft launch its Indian Startups supports program-‘Highway to a Hundred Unicorns’ in India.
Chinese internet giant Tencent Holdings has invested $2 billion in Indian technology startups including Flipkart, Ola, Swiggy, and Byju’s. World’s leading company Amazon also investing in Indian startups, and creating an ecosystem for its strategic goals and made investment in InsureTch General Insurance Ltd, BankBazaar, and online lender Capital Float.