What makes Corporate Venture Capital (CVC) different?
If you are a startup working with a future-looking technology like 5G or the Internet of Things (IoT), and you are looking for funding, you have several funding choices. So which one is best?
If you want quick access to new clients and revenues, you need a partner who believes in the growth potential of your business. Corporate venture capital (CVC) is an effective solution with the ability to rapidly grow and maintain your startup's momentum over a sustained period of time, so not just for today.
CVC is one funding source out of several. Understanding the differences in the types of venture capital can help you match your project with the right VC partner.
What is Venture Capital?
Venture capital (VC) is a form of private equity and type of financing that investors provide to startup companies and small businesses that are considered to have long-term growth potential.
The investors contribute money, capital investment, and knowledge in exchange for partial ownership in the business through a limited partnership or direct equity ownership.
Venture capital typically allocates funds to small companies with promising growth potential or to companies that have grown rapidly and are poised to expand.
Investors may contribute more than money, as contributions can also be provided in the form of technical or managerial expertise.
Venture capital investors assume financial risk. That risk is if your business fails, the investor will lose money. The benefit to your startup company is they have a vested interest in your success.
Where Can Startups Find Investors?
Startups can look for investment through several avenues. Each source of funding comes with rewards and drawbacks. The startup team will work with the investors in concert, so a correct match is essential for both sides.
Startup owners must know they are giving up a portion of future business returns in exchange for current investment. Investors assume the risk that the startup may fail, resulting in a capital loss.
Knowing your funding needs, your team structure, and your desired exit strategy and time frame will help you make a wise choice. You and your investor will work together for several years.
Below is an overview of how corporate venture capital is different from some of the other types of venture funding for startup companies.
Institutional VCs
Institutional venture capital comes from professionally managed funds that invest between $25 million and $1 billion in emerging growth companies. This funding is best for high-growth companies with a goal of at least $25 million in sales in five years.
In addition, the supply of institutional funds is limited. And these investment dollars go to companies already established in the institutional venture capitalist's portfolio.
Corporate Venture Capital (CVC)
Corporate VCs provide startups with in-depth industry knowledge and access to potential clients. Entrepreneurs raising capital have increasingly found these investors to be an effective source of funding and support.
Corporate VCs are organised as an independent arm of a firm or as designated investment teams off their company's balance sheet. Corporate VCs aim is similar to institutional VC companies: to invest in high-growth companies that create value for the company. However, the CVC is focused to offer the startup's products and services to the CVC's parent company, giving a unique advantage.
Investments in corporate ventures enable the company to pursue riskier and more disruptive research and development (R&D). It gives a company more scale in R&D than their profit and loss (P&L) allows, while also offering access to market and talent not otherwise available.
Fund Objective
Corporate VCs have several strategic objectives. In the short-term, they invest in partners that drive closer alignment and tighter relationships to the company; while in the long-term, they invest strategically to support the growth of the parent company.
Investment Stage
Early to mid-stage companies are preferable to corporate VCs. Deal flow is much more accessible at this point. Your startup gains a brand association with strong credibility and offers an established customer base so you can quickly add new clients and revenue. Corporate VCs are able to more effectively leverage their strengths in the investment.
Control Level
Because of fiduciary responsibility and accounting implications, Corporate VCs do not seek tight control over your business. Usually, corporate investors prefer a board observer role over seating with a vote. This position implies less absolute control over your company while still being an active partner.
Exit Strategy
Corporate VCs are usually open to various exit opportunities. An investment can have a wide range of outcomes. While financial returns are an enormous benefit, they are not the only exit opportunities. For example, a Corporate VC would value an investment as an acquisition target, an original equipment manufacturer (OEM) partner, a route to more company product sales, or even an integration that would drive sales for the investing company.
Startup Benefits to Corporate Investment
An organisation that joins a startup-corporate partnership program (CVC) will enjoy immediate and tangible benefits. If you haven't considered partnering your innovative startup with corporate investing, competitors could outpace your business. Startup-corporate programs are available in hundreds of varieties, and finding the right fit is critical to your success.
Consider as well the benefits you bring to the corporation who would like to fund you.
1. Agility and Momentum
In most cases, startups can operate with more agility than their corporate counterparts. This agility will help your corporate partner move quickly through prototyping, development, and deployment.
When companies risk being outpaced by industry competitors, it is extremely important to think quickly and act quickly and that's where your startup can help the corporation.
Although building a new product or surveying the landscape is important, its importance lies just as much in the process and not just the end result.
Your process may be the magic which a corporate investor wants to see grow. Their partnership will get you where you want to be faster.
2. Access to Emerging Technology
Savvy startups typically have access to and use the latest technological advances to create next-generation products and services.
Since corporations have direct access to those new technologies, they have the firepower required to create industry-leading products and services. And your startup benefits from their investment.
Startups can think outside the box and maximise seemingly unrealistic or insurmountable technological opportunities. This kind of risk-taking has allowed emerging technologies such as virtual reality to compete in the digital marketplace.
Your startup could be the next wonder child with the help of corporate investing.
3. New Markets and Verticals
Having a CVC on your side enables you to disrupt new markets. The CVC can provide your startup with all the information and insights necessary to speed up your growth strategy.
This is one of the unique upsides to CVC, as it can open doors which otherwise would take more time to open.
4. Product Validation
Testing and validating products and services in a healthy feedback environment allows your startup to build more robust, customer-centric deliverables with the help of your unique innovations.
Your CVC partner can help your startup think objectively about a product or solution and create solutions that provide great value to the clients and customers.
When you consider the capital investment, knowledge, and technology sharing the CVC brings to your growth, and the benefits your startup innovation also shares with the CVC, you may have found the right fit.
Wayra as Your Corporate Investment Partner
Wayra helps match your startup with new revenue opportunities at Telefónica, the global telecommunications multinational. We scale startups in a variety of technologies. If your startup is involved in any of the following technologies, we encourage you to explore our opportunities and talk with us:
- 5G Connectivity
- Blockchain
- Data Analytics
- Cloud Services
- AI/ML
- IoT
- Quantum Computing
- B2B SaaS
- Future of Work
- Cybersecurity
- Mobility
- Metaverse
- EnterpriseTech
- Industry 4.0
Wayra connects Telefónica and technological disruptors around the world. As their preferred strategic partner, we scale them up to accelerate their business and ours. Over 100 startups from Wayra are already working with us to provide disruptive solutions to Telefónica and its customers.
With our Telefónica investment vehicles, we can provide investments along the whole start-up funding cycle. We typically look for startups in the late-seed to growth stages.
We look for startups with first revenues and technical validation of the product by other customers.
Our financing ranges from €350K to +€25M and we hold minority stakes.
We Bring Technology Funding to the European Marketplace
Wayra.de invests in DACH (Germany, Austria, Switzerland), Benelux (Belgium, Netherlands, Luxembourg), Israel and Nordics (Denmark, Sweden, Finland, Norway, Iceland) startups while helping them connect globally. Other Wayra divisions invest in other parts of the world.
Wayra's Investment Strategy
Wayra offers your startup a unique venture-client strategy that helps its startups to scale globally, offering them access to Telefónica's network of 350 million customers.
Wayra offers a unique and seamless interface between start-ups, our network of companies, governments, and other partners, adding value to entrepreneurial ecosystems and driving innovation at Telefónica.
We provide tools, content, and resources to assist you at every stage of your startup growth.
As Telefónica’s Open Innovation Hub, we scout for innovative solutions based on their needs. If your service or product can tackle their requirements, we will connect you for a potential paid pilot project.
We will help resell your product to Telefónica's customers or test your solution with Telefónica internally and help you gain Telefónica as your client.
Our Investment Process
Our investment process follows a 6-8 week timeline which is standard for corporate investing. It follows four key steps:
- Gather your information and perform light due diligence on the technology potential, the business model, the adoption rate in the marketplace, and the fit with Telefónica.
- We meet the management team to discover your vision and your level of courage in the team.
- Do deep due diligence to validate the technology and the business side of your business: how you operate, how you sell, and how you plan to grow.
- Form an investment committee with Telefónica stakeholders.
How We Help
We want you to succeed. We understand the components a startup needs to be truly successful in the marketplace. Explore our online resources at our Startup Guide. We cover:
- Investment
- Scaling
- Community
- Communication & Collaboration
- Finance
- HR & Team Management
- Marketing
- Legal
- Munich Guide
- Automation
Our Unique Tech Lab
We enable the development of 5G and Edge Computing Use Cases in our easily accessible test space with startups, Telefónica and tech partners.
We are the only lab providing a place with all necessary technologies: 5G Public (NSA) & Private (SA) Network, Edge Computing Capability, NB-IoT & LTE-m and more to bring your startup's 5G solution to the next level.
Startups can develop groundbreaking new use cases and partner with Telefónica for a ready-to-commercialise solution in the 5G and edge computing sector.
Work With Us to Connect Your Startup to the World
We won't know the value of your business, or how you build technology to connect to consumers, until you tell us.
If you think your startup may be a match for Wayra, we encourage you to explore our website and use our tools like pitch deck templates and financial plan templates to prepare your business for our investment strategy.
We want to hear from you, and we'd love to welcome you to our 2022 award-winning Best Startup Program. Get in touch with us today.
