Corporate Venture Capital “CVC” investments are present in nearly a quarter of all VC deals, according to the Q1 2024 Venture Monitor, published by the National Venture Capital Association and Pitchbook.
Minority investments, including through Corporate Venture Capital units, are often used to fund strategic bets on new technologies, emerging markets, and talent-driven partnerships.
Despite their inorganic growth benefits, in most organizations the CVC team does not report to the Head of M&A, according to a recent survey by the Transaction Advisors Institute.
Does this mean minority investments are disconnected from the M&A strategy?
More than 80% of the respondents report the M&A team and CVC team separately source and execute transactions.
In fact, the majority report their organization does not have any structured process for coordinating M&A and minority investment initiatives,
Although M&A and CVC typically operate as separate teams, in most instances they report to the same individual - the CFO, CEO, or Chief Strategy Officer.
While some CVC units look to generate M&A deal flow or financial returns, longer term strategic interests unpin most minority investments including market exploration and development.
Better Apart?
For many CVCs, the time spent managing their corporate parent is significant and pulls their focus away from investing and adding strategic value, according to the recent Silicon Valley Bank “State of Corporate Venture Capital Report”.
Silicon Valley Bank also reports that the largest CVC use a performance based carried interest compensation model, which is common in venture capital firms, but unheard of for corporate M&A teams.
Perhaps it's better to have the CVCs operating separately - serving as independent market sensors.