Startups Seeking Funding Should Consider Corporate Venture Capital Arms
Venture capital funds capitalized and run by major corporations are becoming more popular, and are commonly referred to as “venture capital arms” or “corporate venture arms.” For example, companies such as Google, Qualcomm, Comcast, Dell, Microsoft, Nokia, and Intel all have professional active venture arms. This is an important development for entrepreneurs and startups, as these corporate venture arms can invest significant capital and provide substantial assistance to a startup.
Companies in many industries, from technology, software, and consumer retail to aviation, media, and mobile telecommunications, have corporate venture arms that make strategic investments. An excellent report by CB Insights shows the breadth and scale of this activity. (See the 55 Most Active Corporate VC Firms Globally.)
In this article I discuss a number of key points about how corporate venture arms are established and operated, what benefits they bring to startups, and the goals of these organizations.
1. Why Do Companies Establish Corporate Venture Arms?
Companies establish venture arms for a variety of reasons, including:
- Financial returns
- Getting exposure to new and disruptive technologies
- Enabling new potential partners
- Getting exposure to new business models
- Gaining market knowledge
- Establishing relationships with innovative entrepreneurs
- Investing in companies strategically important to the parent company
Qualcomm Ventures is the corporate venture fund of Qualcomm, with 180+ active investments and numerous exits, including $6 billion+ in outcomes in the last five years alone. Patrick Eggen, Managing Director of Qualcomm Ventures North America who leads all U.S. investments, says, “We are financially driven but invest in specific areas which represent core, adjacent, or future markets for Qualcomm. Think of Qualcomm Ventures as the eyes and ears for Qualcomm to identify future technology trends. Additionally, we still apply the same investment filters as any traditional venture capitalist and don’t require any commercial relationships as a pre-requisite to our investment. You partner with us to get technical value-add and wireless domain expertise.”
2. How Are Corporate Venture Arms Structured and Funded?
Corporate venture arms are typically structured in one of two ways: as a stand-alone limited partnership or as a separate division in the corporate parent, with investment team members operating the venture arm.
There are a variety of ways that corporate venture arms are funded. One way is that if a separate limited partnership vehicle is established, then capital is invested directly into that vehicle for future investments in startups. Another option is for the corporate parent to allocate a certain amount of capital for potential investments.
3. What Kinds of Investments Do Corporate Venture Arms Look For?
Corporate venture arms vary as to the types of deals they are looking for, but here are some key elements often sought:
- Startups with high growth potential
- Startups with large addressable target markets
- Startups that may be synergistic with the business of the parent company of the venture arm
- Startups with a big financial upside
- Startups that may make sense for the corporate parent to acquire in the future
Many corporate venture arms look for early stage to mid-stage deal investments, and will participate in seed rounds, Series A rounds, and Series B rounds.