Business Planning, Business Plans and Venture Funding

- Corporate Venture Capital -

Corporate partner funding is something that should be of interest to all entrepreneurs and their start-ups. This type of funding has the potential to provide capital at a lower cost to the start-up than from the traditional, pure financial resources, angel investors, or venture capitalists. Corporate partner funding, at the same time, provides something much more valuable to the start-up – the potential for a strategic alliance to enhance the potential to access market opportunities for both parties. This can be a “win-win” situation for the corporate partner as well as the start-up. The corporate partner, by taking advantage of the start-up’s technology, product, or service offering, can address an existing market or a new market it is not currently engaged in. At the same time, this corporate partner provides the start-up with the ability of achieving much higher levels of market penetration in their targeted markets at an earlier point in time than they would be able to achieve by themselves. This mutually beneficial relationship can be very positive to both parties.

Beyond the capital investment by the established corporate partner, both companies often seek to develop a strong working relationship to cooperate together in some generally accepted manner. Often strategic corporate investments in start-up companies by a large corporation lead to an acquisition at some point down the road. Therefore, the ability of a start-up company to establish a successful working relationship through a targeted strategic partnership only enhances the potential of the start-up to be acquired by the large corporate partner.

Within the last 10 to 15 years, many large Fortune 500 corporations have established their own venture capital funds with the sole purpose of identifying small start-up companies to invest into in order to promote their company’s strategic market initiatives. According to Venture Economics and the National Venture Capital Association, in the United States in 1994 only 2% of venture capital investments were from corporate venture capital, but by 2000, corporate venture capital accounted for 17%, or nearly $20 billion in venture capital funding.

Historically, corporate venture capital has become a mainstay in venture funding in the United States. The following figure outlines the total number of venture capital deals in the United States along with the corresponding number of corporate venture capital deals from 1996 to 2005.

Total Venture Capital Deals and Corporate Venture Capital Deals

Finally, as depicted below, in 1996, corporate venture capital participated in 9% of the total number of venture capital deals. Corporate venture capital then piqued in 2000, having participated in 27% of the venture capital deals. Since 2000, and over the last few years, corporate venture capital has leveled off. In 2005, corporate venture capital participants were represented in 19% of the total number of venture capital deals in the United States. Also as noted from this figure, for these same years, 1996, 2000 and 2005, corporate venture capital investment, as a percentage of total venture capital dollars was 6%, 19% and 6%, respectively.

Corporate Venture Capital Activity in the United States

This corporate venture investment trend will continue, with many large corporations adding shareholder value through their corporate venture groups. This is generally considered now a part of well-developed corporate strategies that provide large corporations with unique access to a new and trendsetting market through their smaller and more nimble start-up ventures’ innovative technologies, product, or service offerings.