Corporate venture capital (CVC) investments were direct equity or equity-linked investments in external entrepreneurial companies. Unlike a traditional venture capital (VC) firm, a CVC’s parent company typically did not make investing in emerging companies its core business. This differentiated “normal” VC investments from CVC investments, with ramifications that will be explored below.
Corporations were making equity investments in startup companies as early as the beginning of the twentieth century. (Henry Ford and Thomas Edison, for example, were both active in this regard.) CVC activities structured as ongoing efforts within corporations, however, did not come about until the 1960s, about a decade after the emergence of modern VC firms. The early movers in CVC were technology-focused companies; by the beginning of the twenty-first century, however, companies from a variety of industries—from consumer packaged goods and media companies to industrial and energy concerns—initiated CVC activities.
CVC growth in the early twenty-first century was propelled by companies seeking new growth as well as a way to defend themselves against disruption. The average tenure of a company on the S&P 500 had decreased from sixty years in 1958 to only eighteen in 2012,1 at least in part because of the widespread availability of low-cost technology, shorter innovation cycles, and expanding global networks that enabled even small companies to disrupt entire industries. In order to avoid being disrupted or falling behind, corporations from a broad range of industries and geographies initiated CVC activities, and both the number and volume of CVC deals increased.