Debunking 5 Myths of Corporate Venture Capital

Corporate venture capital (CVC) is a form of investment where large corporations set aside and deploy capital as equity investments in startups. However, several myths surrounding CVC prevent corporates from including CVC in their innovation programs.?

In this article, we will debunk some of these myths and show the strategic importance of CVC for corporates looking to stay competitive in today's rapidly changing business landscape.

Myth #1: CVC is expensive and requires a large budget

One of the biggest misconceptions about corporate venture capital is that it is an expensive investment option. While it is true that CVC requires a financial commitment, it is less costly than many people believe. In fact, CVC can be a cost-effective way for companies to access new technologies and markets, especially when compared to R&D investments.

Corporates often think they must spend large amounts of money to create internal capabilities and employ investment experts to run a successful CVC program. In contrast, forward-thinking companies partner with external fund managers to structure and manage custom CVC programs that deliver strategic value and financial returns. This approach solves the challenge of scale, enabling the corporate to run a Corporate Venture Capital program at scale with an experienced venture capital team that can hit the ground running.

Myth #2: Startups are not taking business away from us right now

Another myth surrounding CVC is that startups are not taking business away from established companies. This is simply not true. Startups often look irrelevant or harmless to you because they operate in other countries, focus on only one part of your value chain, or target low-value customers you don't want. The reality is that technology startups are well-funded and drive long-term disruptive innovation that will inevitably affect your business.

Do you have a clear picture of what your industry will look like in 5-10 years? Do you know what the opportunities for disruptive innovation are? Do you know what future capabilities you will need to compete and maintain your market share? Do you know what business models are likely to succeed?

CVC is not only about investing in startups; it is about gaining insights into the future of your business and leveraging opportunities for disruptive innovation to shape your industry.

Myth #3: We can always acquire startups later if they ever succeed

While it is true that corporates can acquire startups later on, waiting too long can be a costly mistake. When a startup is successful enough to be acquired, its valuation may have increased significantly, making it more expensive to acquire. Additionally, waiting too long can mean missing the opportunity to gain early access to new technologies and markets.

On the other hand, building new internal capabilities or acquiring immature startups may solve short-term challenges. Still, they're more likely to kill the innovation entirely and don't make your organization agile and relevant in the medium to long term.

Myth #4: Our industry is traditional and moves slowly

Many corporates believe that their industry is too traditional and moves too slowly to benefit from CVC. However, this is not true.?

While customers may be satisfied with incremental innovation for now, this can change quickly if a disruptive startup enters the market. Corporates that fail to strategically invest in new technologies and business models risk being left behind by their competitors.

The traditional music industry didn't see Spotify coming, nor will you see the inevitable disruption in your industry coming unless you are part of that disruption.

Myth #5: We're huge & startups don't have the scale advantages that we have

While it is true that established companies have certain scale advantages, startups have other advantages, such as agility and innovation. By challenging the status quo and offering unique value propositions, startups can change the basis of competition in traditional markets.?

Established companies can gain access to these advantages by investing in startups and staying competitive in the long run.

In conclusion, corporate venture capital programs enable companies to stay competitive in today's rapidly changing business landscape. It enables future integration capabilities of innovative technologies and business models into the organization to remain competitive without affecting current operational efficiencies. And ultimately, a successful CVC program is sustainable and generates positive financial returns in the long term that far exceed expectations.

By debunking these myths, we hope to encourage more forward-thinking corporates to explore CVC as part of their innovation program. Read about the CVC fund we manage for Imperial Logistics, a DP World company.?