What Is Corporate Venturing?
Have you heard of corporate venturing? It’s become an increasingly common way for small, early-stage companies to acquire financing. Most companies, of course, aren’t immediately profitable after opening their doors to customers. It takes companies an average of two to four years before they realize profits. With corporate venturing, however, small and early-stage companies can obtain the financing they need to facilitate their operations during this critical growth phase.
What Is Corporate Venturing?
The Basics of Corporate Venturing
Also known as venture capital financing, corporate venturing involves the investment of a large company into a smaller company. In other words, a large company will buy an equity stake in a smaller company.
There are two reasons why larger companies invest in smaller companies as part of corporate venturing: monetary returns and strategic partnerships. When a large company buys an equity stake in a smaller company, it may realize profits as the smaller company stock price increases.
More importantly perhaps, corporate venturing allows for strategic partnerships. The large company may use some of the smaller company’s resources — patents, technologies, talent, equipment, assembly lines, etc. — for its own operations. At the same time, the large company may provide its own resources to the smaller company in which it invested, allowing for a mutually beneficial arrangement between both parties.
For small and early-stage companies, corporate venturing offers the following benefits:
- Offers a fast way to acquire financing
- Financing doesn’t have to be repaid (in most cases)
- Fewer requirements than traditional financing methods
- Corporate venturing can be customized to accommodate the small business’s needs
- Allows for strategic partnerships with large companies
Corporate Venturing vs Venture Capital
Corporate venturing works in a similar way as venture capital. In both scenarios, small and early-stage companies can receive financing. With that said, there are a few differences between corporate venturing and venture capital. Corporate venturing, for instance, is always performed by a large company, which invests in a smaller company. Venture capital, on the other hand, may be performed by a company, an investor or a group of investors.
Another difference between corporate venturing and venture capital is that the former typically includes a strategic partnership. When a large company invests in a smaller company as part of corporate venturing, it will form a strategic company with that smaller company.
This article was brought to you by Intrepid Private Capital Group – A Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.