Corporate venture capital offers benefits to both the companies that invest and the startups they’re investing in. Learn how corporate venture arms drive innovation and growth.
written by: Paige Bennett
executive editor: Ron Dawson
Corporate venture capital offers benefits to both the companies that invest and the startups they’re investing in. Learn how corporate venture arms drive innovation and growth.
written by: Paige Bennett
executive editor: Ron Dawson
When startups look to reach their next milestone, they may consider venture capital as a fundraising option.
However, funding for startups isn’t limited to traditional VC. Corporate venture capital is another option that may allow startups to source funding and even take advantage of existing technology and other resources that a corporation owns and uses. In return, corporations have a chance to increase their revenue as the startup scales.
Corporate VC funding has been growing over the past decade, and this method of funding can offer benefits to everyone involved. With some of the most successful examples of corporate venture capital funding, including a partnership between Visa and Stripe as well as Google Ventures and Uber, it’s clear these setups have the potential to improve both the corporation and the startup.
Here’s why corporations invest more in VC arms—and why startups should consider pursuing corporate VC funding.
Corporate venture capital is when an established company invests its corporate funds into a startup company that is separate from the corporation. Corporate venturing can benefit the company, from diversifying its portfolio and revenue streams to opening up partnership and talent acquisition opportunities by supporting young companies.
According to the Top VC Fundraising Trends of 2024, traditional VC funding decreased in 2023 compared to its big funding year in 2021. By comparison, the number of corporate VC funding units globally reached a high of 2,869 in 2021 and remained high, around 2,753 corporate VCs, in 2022, Global Venturing reported. Just 10 years ago, there were fewer than 500 corporate VCs, revealing a major increase in corporations developing VC arms in recent years.
So far in 2024, corporate VC funding has already shown promise, with totals ranging from around $8.26B to $11.76B in monthly investments.
Venture capital is known for its risk, so why would revenue-focused corporations want to take on that risk by developing venture capital arms?
As it turns out, the risk can be well worth the reward for companies investing in VC. Aside from a chance at major financial returns from a successful startup, corporations can benefit in many other ways through their venture capital arms.
By establishing a VC arm for investing in startups, corporations have a direct way to see what new businesses and technologies are coming up in their field. When a corporation sees a startup with a disruptive idea that could improve the industry, the corporation has a chance to invest in that startup and rely on its technology or solutions for its own business operations, improving both companies with one investment.
For example, healthcare corporations are developing VC arms to invest in the technology of tomorrow, which can improve patient care. The Cleveland Clinic has invested in over 80 startups since 2000, and it particularly focuses on investing in ideas developed within the company. Other major healthcare systems such as Cedars-Sinai, Mayo Clinic, and Kaiser Permanente all invest in healthcare startups based on ideas developed within these entities, as well as external startups that show promise to innovate the industry and allow healthcare professionals to better serve their patients.
When companies start their own VC firms, they essentially have a front seat to some of the biggest startups of tomorrow. As they review pitches and consider which startups to invest in, they can also consider early on which startups align with their own business. This allows the company to determine the startups that show the most promise for future partnerships that could benefit both brands.
One example of a highly successful partnership that stemmed from corporate VC funding is between Google Ventures and Uber. Google invested in Uber early on and allowed it to utilize its technology, such as mapping. In turn, Google Ventures received a major return on investment when Uber became a unicorn.
When corporations use their VC arms to invest in startups, they have a chance of investing in the next big startup. If they happen to invest in a successful startup or even a unicorn, that startup becomes another stream of revenue. Just as we saw Google Ventures benefit from its investment in Uber, corporate VCs can make their money back several times over if they do their due diligence and invest in a successful startup with a strong business plan.
Not only is there the chance for revenue, but by establishing a VC arm with investments in multiple startups, corporations can diversify their portfolios and add revenue streams to keep money coming in, even when there are dips in market trends for their primary business.
With a corporate VC arm, companies have their ear to the ground regarding emerging startups. That gives companies considering investments in startups an advantage over competitors without VC arms. Companies can see what new technologies and ideas are coming up in the industry and incorporate these innovations into their own companies through investing. Plus, companies can adapt their business plan to account for disruptive ideas they see rising on the VC side, a perk that companies without VC arms may not have.
It’s not just revenue or even emerging technology that corporations can tap into through their VC investments. The VC arm also allows companies to connect with promising startup leaders and teams, providing a pool of top talent with innovative ideas that the company can consider when hiring new team members.
Hundreds of major corporations worldwide now have venture capital arms to capitalize on the many benefits VC investing can bring. Even HubSpot has HubSpot Ventures to invest in startups and help them grow while continuously improving the services and resources available to HubSpot clients with investments in companies like ClickUp for project management and Jasper for AI technology.
Here are several of today’s leading companies and their VC arms:
A venture capital arm isn’t just of benefit to the corporation. Corporate VC has several benefits for early-stage and scaling startups because this type of funding can open up opportunities to access other resources in addition to funding. Corporate VC funding can also open doors to additional promotion, improved credibility, and other supports that help improve the chance of success for a startup.
For example, a recent Hubspot Ventures investment into doola, a company supporting people who want to start LLCs, offers several benefits, including integration with HubSpot and knowledge and resources from the team.
Here are some of the benefits to startups that receive corporate VC funding.
When a startup receives funding from a corporation within its field, founders can learn more about the industry from colleagues, even if the startup is new to the scene with less experience. Corporations have often already overcome many challenges that their specific industry poses and can get startup leaders better prepared to overcome those same challenges.
When corporations invest in startups through their VC arms, they are often open to partnering or promoting the startup. After all, the corporation wants the startup to succeed so it can get a return on its investment. So, the corporation may put out a press release or start marketing some of the startup’s services to clients in order to grow the startup’s client base. This allows startups to access a wider range of customers, who in turn will trust the corporation’s recommendations, considering they already pay the corporation for its products or services.
Startups sometimes face challenges in seeking funding or even new clients because of the lack of business history and proven track record. However, when a big-name corporation backs a startup, it automatically lends that company’s credentials to the startup, making it more credible to potential investors and customers.
People may feel more trusting in a startup if a bigger corporation is willing to invest its own money into that startup, which can help startups get through the VC due diligence process or show customers that they are a valid, trustworthy company worth doing business with.
While corporations aren’t looking to acquire every startup they invest in, they may be interested in acquiring the ones that could most benefit the business. For startups, an acquisition is one of many options to exit. Startups need to have an exit strategy as a way to allow the founders or investors to leave the company when they are ready, and an acquisition by a large, successful company is one of many ways that founders could exit.
Through corporate VC funding, there is more potential for acquisition when a corporation has already invested in the startup. The acquisition could be a lucrative transition for both parties. As Crunchbase reported, Intel’s VC arm has some of the highest number of startup acquisitions in the corporate VC sector, followed by Google Ventures.
Corporate VC arms invest in promising startups and want them to succeed. As such, corporations will often help boost the startup by promoting it through marketing emails, calls with existing and potential clients, social media posts, press releases, and other distribution channels. Again, this can build credibility for the startup and improve its brand recognition. Plus, it allows the startup to take advantage of the corporation’s existing customer base and target audience.
Both startups and corporations can benefit from a venture capital relationship. As investors, corporations get an early look into emerging technology, disruptive ideas, and changing industry trends and can adopt the best, brightest ideas early on in exchange for their investment.
Startups not only receive funding from the corporation, but they also get access to other resources, including mentorship, an established customer base, and corporate technology. Startups may also receive opportunities for cross-promotion and even acquisition, building a stronger path to success.
All in all, corporate VC can be an alternative to traditional venture capital for startups, and it offers unique benefits to both the investor and the startup, allowing both companies to thrive.
Most startups don’t succeed, so what’s the difference behind those that secure VC funding and have a successful exit? Let’s dive into the VC investment process.
For many startups, fundraising is a continuous hurdle. However, with proper research and planning, founders can confidently navigate the process. Use this guide to fundraise successfully for your startup.
Olivia O’Sullivan, partner at Forum Ventures, shares her top tips for startups seeking VC investments through series funding. Read her expert advice here.
