Corporate venture capital is used to describe the investments of corporate funds directly in external start up companies. The objectives of corporate venture capitalists vary from one to the other: some corporate investors mainly want to identify and get stakes in companies they may someday acquire, others want to tap into promising technology and there are still others that are like traditional venture capitalists, purely interested in return on investment.
The venture capital investment decision of a corporate body is defined by two characteristics: its objective and the degree to which the operations of the investing company and the start up are linked. Although companies typically have a range of objectives for their venture capital investments, this type of funding usually advances one of two fundamental goals.
The firms make strategic investment decisions that are primarily intended to increase sales and profits of the corporation’s own businesses. A company making a strategic investment seeks to identify and exploit synergies between itself and a new venture.
The investment objective is basically financial in nature, wherein a company’s decisions are driven by attractive returns. A corporation, in this mode of investment seeks to do as well as or better than private venture capital investors, due to what it sees as superior knowledge of markets and technologies, its strong balance sheet, and its ability to be a patient investor.
Many public companies have either a venture fund or business development group for strategic alliances and acquisitions, or both. Generally the venture arm of a public company invests "behind" a venture capitalist, leaving the due diligence and active management involvement to the venture capital investor. Many Corporate investors prefer to group with traditional venture investors, but many of them do invest in young firms, invests in new ideas and new markets for their own goods and services and, in some cases, keep innovative technologies out of the hands of competitors through investing in small companies.
