Corporate Venture Funds

Corporate venture funds are venture capital funds financed pardy or entirely by industrial companies. They are ideally managed using the same financial criteria as venture capitalists would apply but, in addition, they have a strong relationship with their industrial investors. The startups funded then benefit from the investors industry knowledge, while the industrial investors not only receive a financial return but also better information from the market to use in external and internal investment decisions. They can provide access to new technologies and allow companies to build an external network by, for example, cooperating with a number of different startups. This has given some corporations access to important deals in return for a relatively small investment. 

However, the historical track record of CVC overall has been poor. A survey in the late 1970s found that only 7 percent of corporate venturing programs considered themselves to be successful. Some important chemical companies were numbered among the failures. 

After a long period of low activity, the commitment to corporate venture capital has increased sharply in recent years. The high-tech sector (including companies like Cisco Systems and Intel) has been enthusiastic about the idea, and corporate investment in US venture capital funds increased tenfold between 1995 and 1997 (Fig. 9.2). European chemical companies that are currently active in corporate venture capital include Bayer, Aventis, and BASF. 

Recent deals in the field of agrochemicals - mainly made between 1997 and 1999 - have demonstrated that it is financially more effective to make a large number of early corporate venture investments in high risk plant biotechnology businesses, for example, than it is to acquire a successful startup at a later phase. The price premiums that have to be paid in the later phase are much higher than the cost of placing many bets widely at an earlier stage. 

To unlock the potential in corporate venturing, companies should take the following steps  

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Corporate centers are better positioned than business units to initiate and drive selected cross-business themes or initiatives such as procurement, e-commerce or innovation/venturing. They can pool the necessary skills and build competence in areas where BUs do not have critical mass (e.g., business development in China, leveraging biotechnology in chemicals, e-commerce). They can also provide incubators for growth options or build up corporate venture funds, dedicating intellectual and financial resources to selected projects that can help individual businesses secure their long term growth. 

Corporate venture funds to gain access to high potential ideas and deals from outside the company. 

In the agrochemicals sector, where the application of biotechnology in chemical businesses is most advanced, the leading players have already demonstrated successful transformations along these lines that have led to a string of new ideas and new businesses key agrochemical players, for example, have set up corporate venture capital funds and created strong cooperations with startups. 

Consequently, in 2000, Singapore Technologies created three investment clubs, unofficially called Tortoise Clubs. The corporate human resources department tapped approximately thirty executives from various parts of ST and asked them to form three different venture investment clubs. The mission of each was to manage a fund that would invest in companies founded by ST staff. One was Neo Kok Beng, an engineer who joined Singapore Technologies computer subsidiary and had worked in a variety of technical and business development positions. He comments ... 

Fourth, committing the funds needed to make current vaccines available to all who need them at a profit for the patent holders is a much more persuasive way to show venture capitalists, biotech firms, and multinational corporations that a market for diseases of the poor exists, than promising to buy a future vaccine without paying researchers or developers a dime until they have taken all the risks of failure and fully tested a yet-to-be-discovered vaccine many years from now. 

Value creation 11-21, 26-35 Value-driver trees 156, 159 Vendor managed inventory (VMI) 84 Ventro 34 Venture capital funds biotechnology 67, 77 corporate 117-118 innovation 32, 114 Venture capitalists 31, 66-67, 118 Vertical integration 37, 40-42 Vestolit 39 Victrex 98 Vinnolit 39 Virtual crackers 43 Virtual organization 122 Vopak 34, 35... 

Nearly 6000 device companies comprise an industry with an estimated worldwide market of 140 billion. Eighty percent of these companies have fewer than 50 employees, with the 17 largest manufacturers capturing 65% of the total market. (3. U.S. Medical Devices Market Outlook. A404-54. New York Frost Sullivan, 2003 1-15-1-16). The 2003 medical device market in the United States alone was 63.2 billion. Venture capital plays a crucial role in the funding and advancement of the device industry, allowing individual inventors to develop and market their products. Conversely, the pharmaceutical industry is driven by a handful of multibillion-dollar global corporations. 

A portion of the technical development work leading to the results described was supported by the Defense Advanced Research Projects Agency through the Office of Naval Research. Oxide fiber composites were partially funded by the Department of Energy as part of the CFCC program. Additional funding was provided by the DuPont Company and Lanxide Corporation in support of the DuPont Lanxide Composites Inc. joint venture. 

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