Many big corporations, especially technology comanies, find themselves flush with funds after an explosive growth period over the 90s. These companies need to invest this cash to earn an appropriate return for their shareholders. A corporate venture capital is an ideal investment for these cash rich firms.
Corporate venture capital funds are typically formed with the parent's capital and no outside participation is allowed. Investment in start-up companies helps large public corporations to supplement their own research and to generate new product ideas without committing own personnel for the job. It also allows the big firms to 'think outside the box', identify declining businesses and acquire a stake in a potential future competitor.
Challenges
- It's important that corporate parent and venture capital subsidiary have convering interests and there's nog conflict in future vision or growth
- Venture capital investments typically require longer holding periods of 5-10 years. This should not affect the parent's short-term investment requirement
- A start-up company may not be willing to be acquired at a later stage by the corporate parent
- A failure of the start-up should not result in significant losses for the parent
Solutions
- Focused approach to ensure potential targets complement/supplement the corporate parents capabilities
- Detailed investments analyses incorporating 'real options' to eliminate future uncertainties
- Extensive advice on ownership structure of the start-up with clearly defined acquisition/exit opportunities
- Business plans with 'real options' ensure exit alternatives are available before sizable losses are suffered
Benefits
- Ready access to database of start-up companies
- Independent due-diligence conducted to avoid any future conflict of interest
- V4G has proven expertise in venture capital funding. With decades of experience in corporate transactions, oud advice can make the difference between your succes and failure
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