Corporate venture capital

Corporate venture capital

Three key considerations:

  1. Corporate venture capital (CVC) functions in principle in the same way as other forms of venture capital – you can read more about this on our venture capital page.
  2. In contrast with other forms of venture capital, CVC finance is usually provided by non-financial companies or large conglomerates with a specific goal or sector focus.
  3. CVC performs a key economic role – the identification and nurturing of the innovative businesses of the future.

Corporate venture capital in the UK

Corporate venture capital (CVC), also known as corporate venturing, is a growing source of funding. It describes a wide variety of equity investment undertaken by a corporation, or its investment entity, into a high-growth and high-potential, privately-held business.

corporate venture capital

Venture capital vs. corporate venture capital: what’s the difference?

In regular VC firms, the partners raise funds from institutions such as pension funds, banks, university endowments or family offices. In contrast, corporate VCs are large corporations that set aside a certain amount of cash to invest in start-ups and scale-ups in different phases of their development for a number of reasons – one of them being that they don’t want to miss the boat on the next big thing.

There are advantages and disadvantages to both VC models and business owners should consider, and take advice about, whom they want to bring on board on their journey (or whether a mix of both would be beneficial).

Understanding corporate venture capital

Corporate VCs have a number of key differences to the regular VC model. These differences vary from one CVC to another but the formal and direct relationship between the business and the CVC is usually three-fold.

The CVC:

  1. will make a financial investment in return for an equity stake in the business; and
  2. may also offer debt finance to fund growth activities for an agreed return; and
  3. may offer non-financial support for an agreed return, often linked to their specific sector expertise, such as providing access to established marketing or distribution channels, or knowledge transfer.

It is important that the corporation’s aims are aligned with those of the business.

Next steps

 

bvcaTo find out more, visit the British Venture Capital Association (BVCA)’s dedicated website.

To explore the other finance options for your business, go back to the Finance Journey tool.

Restart your journey Equity vs debt
Equitable questions for an equitable outcome

Before seeking equity finance, you should consider these five questions:

  1. How much is required?
  2. What is it for?
  3. How long will the funds be needed for?
  4. What other skills does the business need?
  5. What level of control do existing shareholders want to retain?

The answers can be incorporated in a comprehensive business plan, which should incorporate realistic financial projections, a detailed marketing plan and, crucially, what the investor can expect in return.

Networking and making use of any suitable contacts is critical to finding appropriate potential investors. Many corporate finance advisers will have networks of contacts in the business angel, VC and PE communities. Engaging an adviser can help the process.

Many private investors focus on specific industry sectors or geographical areas. The following associations may help you to track down investors, networks or networking opportunities:

The British Business Bank and equity

The British Business Bank is encouraging diversity and competition in equity investment markets for smaller UK businesses by committing capital to investment funds.

Find out more about the British Business Bank’s programmes to support equity finance.

Together on the journey

Access to the right kind of finance at every stage in your growth journey enables businesses like yours to invest, grow and create jobs. That’s why the British Business Bank and ICAEW’s Corporate Finance Faculty, and partner organisations representing finance and business, have created the business finance guide.

> Find out more about our partners

The Business Finance Guide

Download our comprehensive guide in PDF format allowing you to print and read at your leisure.

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