The Difference Between Venture Capital and Corporate Venture Capital

Difference Between Venture I think corporations should buy companies. Investing in companies doesn’t make sense.” This quote from Fred Wilson, an American businessman and investor, is already notoriously famous. It demonstrates the great skepticism of companies towards minority investments .Over the past few years, Corporate Venture and Venture Capital have gained popularity across the industry and more investors have found success through these investments.

To invest successfully, it is essential to master the necessary know-how, consider organizational aspects and follow some simple investment rules .

In this post, we explain the basic concepts of Corporate Venture Capital and the main differences between Venture Capital and Corporate Venture Capital.

First of all, what is Venture Capital?

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Individuals or business entities like to america phone number list their capital in different ways, for example in bonds, publicly traded companies (stocks) and startups . In the latter case, the money invested is called venture capital , and the investors are called venture capitalists. In exchange for their capital, venture capitalists receive an equity stake in the company , for example, they invest 1 million euros for 20% ownership of the startup. (This means that the startup is worth 5 million euros before the investment. This is the so-called Pre-Money Valuation).

These investments are, by definition, very risky Difference Between Venture investors have little protection if the young company fails, and the failure rate is very high. However, if successful, these investments can generate impressive returns . The returns for venture capitalists naturally depend on the growth of the company.

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Why is this important?

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Venture capital is an important source of funding for young companies that have limited operating history and adapting to remote work has changed companies’ approaches to it consumption limited access to bank loans or other debt instruments. Venture capitalists play an essential role in maintaining economic ecosystems and fostering change and innovation.

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How Corporate Venture Capital came about

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Corporate Venture Capital – also known as Corporate Venturing – has been around for over 100 years. In 1914, Pierre S. Du Pont’s company australia database directory in General Motors and laid the foundation for Corporate Venture Capital (CVC).

However, since 1914, a lot has changed in the world, and Corporate Venture Capital has gained popularity, especially in the last five years, where global CVC-backed financings and deals have tripled . In 2019, global CVC-backed financings reached a record $57 billion . However, CVC-backed financings are still much smaller compared to classic VC-backed financings, with a total of $257 billion globally in 2019 .

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Why do companies choose to invest their money in risky ventures?

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Corporate venture capital is the practice of large corporations investing in innovative startups . Similar to angel investment groups and VC funds, CVCs invest in startups at all stages. By acquiring equity stakes in these startups, the CVC fund can gain competitive advantage and access new ideas, markets, and technologies . In general, corporate venture capital can be motivated by strategic goals as well as financial goals.

“Corporate Venturing defines the practice of large companies investing in innovative startups to gain competitive advantage and access new ideas, markets and technologies.”

“Strategic” means that the CVC fund’s goal is to invest in startups to Difference Between Venture  new technologies and potentially identify acquisition targets early. CVCs aim to create value for both the company and the startup.