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07
Reasons and Benefits of Corporate Venture Capital
By: Muhammad Abubakar H1
CVCs are two-pronged, with either strategic or financial-driven objectives.
Strategically driven CVCs try to gain better information on how the startup’s
product is being created, the technologies used etc, by becoming directly
involved in the startups. They may do so because the firms believe that the
prospective product or idea of the startup may lead to direct competition with
it. In other cases, it may be because the incumbent firm feels that the
technology possessed by the startup may help boost revenue for the firm if it
were to acquire it.
Silicon Valley is the technological hub of the world. Most tech giants like
Apple, Facebook, Twitter, and Samsung have offices there, and a lot of
prestigious universities serve as the feedstock for the Valley by producing
young aspiring and innovative people. These people often take up jobs in tech
giants or open startups. These bright innovative minds come up with brilliant
ideas, nothing short of revolutionary. However, they lack funding to go
mainstream and make use of Venture Capital (VCs) until they become self-
sufficient. In other cases the products might instantly blow up among
consumers and the worth of the startup might increase astronomically
They may even come into direct competition with tech giants, which is a cause
for concern as their market share is challenged. But why can’t the tech giants
improve their products so much so that the startup’s product becomes
irrelevant?
Because:
a) The cost associated with such an R&D program may be high.
b) The risk associated with it is too high since the improvements may not deter
the startup’s product from capturing market share.
c) The incumbent tech giant may not possess the technology that the startup
has, therefore the acquisition of it becomes essential.
orporate Venture or Corporate Venture Capital (CVCs) can be
defined as incumbent firms that directly invest in external startups.
The incumbent firm may acquire equity stakes in the startup. CVCs
are made by non-financial firms, however there is always a catch.
C