[8][9] As Henry Chesbrough, professor at Haas School of Business at UC Berkeley, explains in his "Making Sense of Corporate Venture Capital" article, CVC has two hallmarks: (1) its objective; and (2) the degree to which the operations of the start up and investing company are connected.
[10] Strategically driven CVC investments are made primarily to increase, directly or indirectly, the sales and profits of the incumbent firm's business.
For instance, investing firms may want to obtain a window on new technologies, to enter new markets, to identify acquisition targets and/or to access new resources.
The CVC division often believes it has a competitive advantage over private VC firms due to what it considers to be superior knowledge of markets and technologies, its strong balance sheet, and its ability to be a patient investor.
Although Dell hoped the seed money will help its own business grow, the primary motivation for the investments was the opportunity to earn high financial returns.
An external venture may offer the investing company an opportunity to build new and different capabilities—ones that could threaten the viability of current corporate capabilities.
This would not be useful in dealing with already disruptive strategies in place, or in finding new ones when the investing company needs to update processes when trying to keep up with a changing environment.
Investing firms expect a high percentage of the business and often provide funding in stages that is dependent on the startup company reaching set milestones.
For example, a venture capital may agree to $5 million during this phase, but may pay out the funding in 1/3 installments based on the startup meeting set milestones.
This may be completed by venture capital firms to align their startup with a complementary product or business line where the combined companies look to assimilate smoothly, creating advantages.
This occurs most often when the firm in which the CVC division invests is focused on products or services that are fairly similar to those produced or offered by the parent company.
These types of partnerships, also known as corporate in-kind investments, may become increasingly common as liquid funds become less available but technologies that have been developed are readily shareable.
Some of these are: Boston Scientific, Amgen, Genentech, Genzyme, Gilead Sciences, Kyphon, Intuitive Surgical, and Scimed Life Systems.
SVC is located in Germany (Munich), in the U.S. (Palo Alto, CA and Boston, MA), in China (Beijing), in India (Mumbai), and is active through Siemens´ regional unit in Israel.
Every opportunity is evaluated against the following criteria:[35] A decade after the NASDAQ stock exchange peaked at 5,132 on March 10, 2000, the index was 2,358 - less half its high point.
This fall affected technology investing as the NASDAQ was an important market to sell venture capital-backed companies, often with business models based on using the internet.
However, a number of US-based technology companies with corporate venture capital units in the 1990s, such as IBM and Microsoft, have concentrated more on other forms of finding external innovation, such as partnering or competitions.
This has traditionally meant innovation, including through the use of corporate venturing, has been of lower priority than gaining market share and pricing power unless required by regulatory action.
The invention of the printing press in Germany about 1440 is widely regarded as the most important event of the second Christian millennium,[42] which reflects the role wider and faster dissemination of information has in society.
Banks have sometimes invested in venture capital to gain early access to companies before their flotation (initial public offering, IPO).
However, a nascent class of large firms, such as insurer The Hartford and bank Citigroup, has started to emerge using corporate venturing, i.e. investing in VC funds or directly in third parties for a minority equity position, as a tool to help their business with product development or understand new technologies/services.
This model is similar to the approach taken in other economic sectors and led to Citigroup being ranked the most influential corporate venturing unit in financial services in November 2010.
[52] Companies in the transport and logistics sector have been occasional sponsors of corporate venturing units, with an increase in technology starting to see further resurgence.
[54] However, other established groups cut back on their corporate venturing activities during the financial crisis, with Netherlands-based TNT winding up the Logispring II fund where it was a majority investor in late 2009.
[57] The flagship title is Global Corporate Venturing, a monthly PDF magazine, along with daily news updates online and a LinkedIn community message and discussion group.
Given the current market conditions, the importance of working with external organizations to seek innovation, partnerships and investment opportunities has never been greater.
NVCA's mission is to foster greater understanding of the importance of venture capital to the U.S. economy, and support entrepreneurial activity and innovation.
[60] ICEX Corporate Venturing Knowledge Exchange Community This is a membership group made up solely of CV executives at large global companies.
It is a private, confidential exchange where members share advice and experience on common challenges to improve their strategic investment and business model innovation activities in the large corporate setting.
ICEX facilitates executive exchange for business and technology leaders at large global companies in areas of innovation, transformation, infrastructure, and enterprise architecture.