Corporate VC (CVC)
Unlike traditional VCs, which typically get their money from third parties such as pension funds, a CVCs belongs to a (large) corporate.
Especially the healthcare industry has a long tradition of CVCs, with pharmaceutical companies having realized that investing into biotech startups can create substantial overall value. This has become mainstream; many of today’s multinational companies have a venture arm. Some focus on strategic investments into startups they want to acquire at a later stage, others focus on financial returns and tick similar as traditional VCs.
An investment by a CVC can bring great credibility. Say you are a tech company and Samsung Ventures invests in you – this would show the world that your technology has big potential, right? Plus, an investment from a CVC may open up the option for an attractive cooperation with the CVCs mother company.
While an investment by a CVC may open certain doors it may block others. To stay with the example from above: Do you think Apple or Huawei would want to work with you if Samsung Ventures owns a good part of your startup? Similarly, a CVC could block a future exit – especially if they have a major stake and/or right of first refusal.
In some industries such as biotech there are many highly experienced CVCs, with a history of fruitful cooperations and established terms that will accelerate rather than block companies. In other industries you will need to think hard whether there is more to lose than to win if you get a strategic investor on board.
Having said this, we feel that adding CVCs in your investor long list often makes sense: Starting the discussion can help you understand the incumbents’ thinking, priorities and key people. There is not much to lose – if you have other parties who want to invest you can still decide. And if the CVC is the only party who wants to invest you will be happy that you have started the discussion in the first place.