CORPORATE VENTURE CAPITAL
When it works and when it doesn't
By Professor James Henderson (October, 2007)
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CORPORATE VENTURE CAPITAL | When it works and when it doesn't
Why and when should your company get involved in corporate venture capital? And once it
has, how do you make it work so that it maximizes your return on investment?
Corporate venture capital is the corporate world’s answer to investing in entrepreneurial
start-ups. Rather than relying on their own innovation, corporate venture capital is an
attempt to benefit from innovations from the market place to sustain profitable growth.
Get in early
Unfortunately corporate venture capital has tended to follow the much larger venture
capital market, albeit with a lag. Why the lag? Venture capital is not a corporation’s core
business. By the time the decision to take the plunge has been made, the markets are often
“very” healthy with increasing numbers of IPOs. Increasing interest in this area during this
upswing often means higher initial investments in the start-ups. And the less easy, three or
four years down the road, to actually liquidate them through IPO or acquisition markets.
If one looks at the history of corporate venture capital over the last 30 years or so, the first
clear message is that timing is of the essence. If you want to take the plunge, take it early
rather than late in the cycle. Better yet, take it when no other companies in your market are
considering it. At least you will then find very attractive investment opportunities.
Focus on start-ups which can help the corporation
Often companies start corporate venture capital programs with a “one size fits all”
approach. However, corporate venture capital investments can in fact be categorized into
three different types: hedging, capability upgrading and capability leveraging.