What are corporate venture investors?
Discussions About Corporate Venture Capitalists
Corporate venture capitalists will often co-invest along with traditional venture capitalists. They can add additional value by opening up access to corporate distribution channels, technology and know-how, and strategic partners.
The typical distinction between corporate venturing and venture capitalists is that corporate venturing is usually performed through self-contained entities with corporate strategic objectives in mind, while venture capitalists typically have investment return or financial objectives as their primary goal.
Obviously, in a perfect world, venture capitalists would never consider a deal with a negative NPV. However, there are reasons large, profitable corporations may choose to pursue an entrepreneurial endeavor like a new product project even if the financial analysis reveals a negative NPV.
The reasons for accepting a negative NPV are:
– To finance the development of core competencies or new product platforms
– To create complementary products to more profitable products in the company’s product line, like creating a new razor to sell more blades
– To develop innovative products for lead users
– To implement environmental policies and other projects based on ethical grounds
– To make a competitive response, either to signal a new lead into a space or to increase barriers to entry
– To develop goodwill with customers and ecosystem
– To bet that the cost of capital will decrease in the future as the project progresses
The amount of venture capital invested by corporate investors grew from $267 million in 1995 to $17 billion in 2000, representing nearly 35 percent of the deal flow. Total capital under management by corporate investors has grown from $2 billion in 1991 to $13 billion in 2001 or about 5 percent of the total in the United States in 2002. Between 1995 and 2000, they invested $31 billion in 4,042 ventures. On the average, 18 percent of their investment dollars goes to early stage, 55 percent into expansion, 24 percent into later stage, and 3 percent into buyout/acquisition. In 2001 deal flow declined more than 71 percent as they invested just less than $5 billion. This represented 12 percent of the total investment activity in 2001.