Corporate VCs Are Forgetting Their Purpose

Corporate VCs Are Forgetting Their Purpose

Conceived as strategic investors, many are focusing on financial returns.

Most people are familiar with the traditional approach to venture capital: An investment firm carefully parcels out capital to a portfolio of start-ups, knowing that most will fail—but that with luck, the financial returns from the handful of winners will make the exercise extremely profitable. For more than 40 years, however, another model has also existed: corporate venture capital, in which a very large company invests in start-ups, often in adjacent industries. While traditional VCs are all about financial returns, most corporate VCs are motivated by strategic payoffs. They recognize that big companies often can’t match start-ups’ ability to create breakthrough innovations, so they use their in-house VC operation to gain insight into new products that could affect their competitive position—and perhaps to get a jump on acquiring the start-up if its innovation turns out to be a game changer. That’s the theory, at least, and it’s proven especially compelling over the past five years. From 2011 to 2015 the number of corporate VC units in the United States rose from 1,068 to 1,501, and from 2012 to 2015 the amount their firms invested quintupled, to more than $75 billion. But as more firms have entered the space, some observers sense a shift in goals. Instead of aiming primarily to enhance their companies’ strategic position, many corporate VCs seem to be focusing mostly on financial returns—just like traditional VCs... Read more (3 min reading time!)

Found in hashtags

Found in tweets

~70% of corporate #VC's have "no interest in acquiring the #startups they fund". @harvardbiz & @MIT https://t.co/3HCCTkuiCV #funding
Jennifer Ives
Jennifer Ives