Amid the funding slowdown, corporate venture capital (CVC) funds remained consistent and even increased their presence in venture deals.
In 2022, amid the venture industry’s funding slowdown, non-traditional investors like hedge funds and private equity firms pulled back. Many assumed that corporate venture capital funds would follow suit, but they didn’t. According to PitchBook data, CVCs participated in 26.2% of venture deals in 2022, a slight increase from the 25.6% participation rate in 2021.
Corporate Venture Capital: A Steady Source of Funds
While every other category of crossover investor participated less in 2022 than in 2021, CVCs remained consistent. This stability is a welcome sign for startups looking for capital. Scott Lenet, co-founder and president of Touchdown Ventures, which helps corporations set up their CVCs, notes that the firm is getting more inbound interest from corporations looking to start a fund of their own.
Why Corporate Venture Capital Remains a Promising Source of Funds
- Volatility: The last few years have led to more funds looking to deploy capital quickly, which can be beneficial for startups.
- Uncertain Exit Environment: CVCs offer a steady source of funds in uncertain times, as they are not tied to specific fund lifecycles.
- Dedicated Support System: CVCs provide a dedicated support system for their portfolio companies, which can lead to faster growth and partnerships with large customers.
Benefits of Corporate Venture Capital
Archna Sahay, head of platform at Northwestern Mutual Future Ventures, notes that having one of your investors as a customer can make it easier to bolster a company’s valuation when raising future rounds. CVCs can also provide a dedicated support system for their portfolio companies, leading to faster growth and partnerships with large customers.
Drawbacks of Corporate Venture Capital
While there are benefits to corporate venture capital, there are also some drawbacks:
- Networking: CVCs may not be able to help startups network with later-stage VCs who could lead later rounds.
- Investor Flexibility: The CVC investors wear numerous hats in the parent company and may be less able to help.
Tips for Pitching to Corporate Venture Capital
Startups looking for capital from corporate venture capital funds should keep the following tips in mind:
- Research the Parent Company: Companies should research the CVC’s parent company before pitching, as most CVCs tend to invest strategically in areas that would affect the parent company or its customers.
- Know Who You’re Pitching To: Founders should understand who they are pitching to and what their priorities are. For example, an insurance company may be more interested in investing in companies with a strong focus on data security.
- Have a Strong Value Proposition: A clear and compelling value proposition can help startups stand out from the competition.
Conclusion
In conclusion, corporate venture capital remains a steady source of funds for startups looking to raise capital in uncertain times. By understanding the benefits and drawbacks of CVCs and preparing well for pitches, startups can increase their chances of success.