Setting up a corporate venture capital (CVC) fund is a powerful way to drive innovation and tap into new markets. But with so many different models out there, choosing the right structure is essential. From my experience advising both corporations and startups, here’s a breakdown of key options and the factors to consider when selecting yours.
CVC Models: An Overview
- Direct Investment: The most straightforward model – the corporation invests directly in startups from its own balance sheet.
- Traditional Fund Structure: A separate legal entity is established as a venture capital fund, with the corporation as the primary or sole limited partner (LP).
- Fund of Funds: The CVC invests in other established VC funds, gaining exposure to a wide range of startups.
- Hybrid Models: Some CVCs use a combination of approaches, for example, direct investments alongside a smaller fund.
Key Decision Factors
No single CVC model is inherently “best.” Here’s what to think about:
- Strategic Goals: Are you focused on a specific industry, making acquisitions, or purely financial returns? This impacts your investment criteria.
- Risk Tolerance: Direct investments can be riskier, funds offer some diversification. Your company culture plays a role here.
- Deal Flow: Does your brand attract strong startups? A fund structure can broaden your reach and manage volume.
- Talent: Do you have in-house expertise to evaluate deals? Funds need dedicated investment professionals.
- Speed & Flexibility: Balance sheet investments can often be faster, funds may have governance hurdles.
Case Study: Aligning Structure with Goals
I worked with various multinational looking to enter Thailand. They weren’t getting the right deal flow on their own, and speed was crucial. A hybrid model worked best: they made a few strategic direct investments to gain sector knowledge, while also establishing a small fund to partner with experienced VCs in the space.
Beyond the Basics
Here are a few additional points to consider:
- Governance: Funds have LPs agreements – how much decision-making power does the corporation retain?
- Incentives: How are fund managers compensated? This must align with your overall CVC goals.
- Time Horizon: CVCs should have longer-term expectations than traditional VC funds, resist pressure for quick exits.
The Right Model is Dynamic
Your CVC structure may evolve over time. It’s essential to start with a clear strategic vision, but stay adaptable as you learn and your goals shift.
Let’s discuss – what are the biggest challenges you face in setting up your CVC?
