Corporate VC

Large firms have historically kept up with innovation through internal R&D and mergers and acquisitions. However, corporate venture capital (CVC) has recently acquired popularity as a means of staying pertinent and ahead of competitors. Many sectors are turning to corporate venture capital as an alternative to innovation since they are experiencing stagnant growth or a negative impact from uncontrollable, external influences. Traditional venture capital firms, while private, often structure their leadership and decision-making procedures for their investments according to a well-worn model. CVC, on the other hand, isn't as explicit. So, let's focus on disclosing what's hidden inside the black box of corporate venture capital arms.  

 

What Should Founders Look Out for in CVC Investment?

From a founder's perspective, comprehending the different tactics corporations use to seek their innovation agenda is critical for assessing the feasibility of corporate venture capital as an alternative to traditional, institutionally-backed VCs. Whether or not a corporate-backed investor is the right choice ultimately comes down to two questions: Are the financial and strategic interests aligned, and secondly can the investor meet the expectations of providing game-changing resources other than capital to increase the chances of success? A good understanding of the investor's internal organization and the relationship with the sponsoring corporation is essential for answering both questions explicitly. 

 

Corporate VC Arms and Their Financing Life Cycle

A startup backed by a corporate VC arm goes through the following stages or rounds in its entire lifecycle:

Seed or Initial Stage

Seed-stage investments typically range between $250,000 and $2 million, with a median of $750,000 to $1 million. The seed round enables the startup to figure out its product, market, and user base. As the product gains traction, the company may consider raising a Series A. However, most firms fail to establish traction before their funding runs out and dissolve eventually.

Series A

Series A rounds vary from $2 million to $15 million, with a median of $3 million to $7 million. The goal of Series A fundraising is to diversify the user base and enhance distribution.

Series B

Series B rounds can be worth tens of millions of dollars. A startup plans to use the Series B funds to enhance its sales and marketing operations, as well as expand regionally and acquire smaller businesses.

Series C

The value of a Series C can range from tens to hundreds of millions of dollars. When a startup gets Series C funds, it's usually in preparation for M&A or an IPO. The funds raised in this round are used to fund the company's expansion activities as it moves forward in its Series B stage.

RSM Insights

Corporate venture capital can undeniably assist corporates while effectively competing for the finest venture opportunities. As a result, instead of dismissing CVC as just an investment, it should be considered a strategic move to capture new innovations and best practices.

Feel free to consult RSM UAE to discuss more on how to harness the benefits of CVC for your company. RSM is one of the world's leading audit, tax, and advisory service networks, recognized for innovative solutions across the globe. RSM professionals can help your company undertake the granular analysis required to plan for creating a venture capital arm in your organization.