With global corporate-venture-capital-backed (CVC) funding reaching $79 billion across 2,099 deals in the first half of 2021, according to CB Insights, the chances are high that startups will find great opportunities with this growing investor set.
CVCs can present entrepreneurs with a different investment process than private venture capital firms. Both types of investment firms make decisions through an investment committee (IC), but private VCs, which include VCs with corporate backers and have an independent LPA structure, form their ICs together with other venture-minded individuals or firm partners.
Entrepreneurs are often unaware that CVCs have become more active and the decision to invest or not isn't made within a specific subgroup of the direct investing team or with venture-minded individuals.
CVCs can invest off a corporate balance sheets, but the IC may include corporate-minded individuals such as the CEO and business unit leaders. These people tend to be disconnected from venture thinking and the requirements of operating in the VC industry. Entrepreneurs will soon realize that a successful CVC investment decision has different requirements than a private VC firm decision.
What do investors looking for investment need to learn about this powerful, yet relatively new participant in the funding process. I will do my best to explain the CVC IC role and show entrepreneurs how they can avoid some of the pitfalls while maximizing the opportunities.
The arbitrators of investment
Private VCs are immersed in the venture ecosystem while CVCs live in two worlds. CVCs must be active in the venture ecosystem to drive deal flow and opportunities that could be strategic for the corporation.
A CVC should have a clearly defined mandate and IC purpose statement in order to deem investment opportunities strategic. An average CEO or business unit leader who attends a monthly IC session for about an hour is almost fully immersed in corporate culture while making a decision regarding the venture world.
