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Corporate Venture Capital and the Challenges of Investing for Large Enterprises

DIGITAL VENTURES October 04, 2017 6:45 AM

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During the past 4-5 years, large enterprises worldwide turned towards Corporate Venture Capital or CVC. Yet, starting a CVC comes with great challenges. Today, Paul Polapat Arkkrapridi, Managing Director, Corporate Venture Capital of Digital Ventures shares his first-hand experience about the 2017 global CVC trend and challenges that CVC encounter when seeking the best startup investing strategies that match the organization.

CVC is shifting towards Asia

Statistics show that, in 2016, the country with the highest CVC investment is in the USA at 60% of the global investment followed by Asia Pacific at 30% and Europe at 12%. In 2017, these figures significantly change, this year, more CVC invest in Asian startups at 41% while the USA decreases to 47%. This is a good sign for businesses in the Asian region.

At present, there are 965 CVC worldwide, a threefold increase in 5 years. Interestingly, this year, 75% of companies in the Fortune 100 have invested in CVC because investing in startups is threefold more efficient than in-house R&D investments.

 

CVC’s challenges

Becoming a CVC may not be so simple as one needs to possess skills and capabilities in order to overcome these challenges.

  1. Objective – For CVC, objectives are a challenge. Firstly, CVC need to define its objective and state the return on investment such as financial return, strategic return, or both. If it is a financial return, CVC can measure its success from the highest return on investment. This process may not be the easiest to implement but it is easiest to assess. However, if the CVC is aiming to invest for strategic objectives, assessment becomes more difficult. This is because a strategy is complex and not easily evaluated by numbers. It may be fair to say that strategies are a “no-one-size-fit-all” and some CVC may invest in startups solely to gain new ideas and learn from the startups.

  1. Organization or Parent Company – The parent company is another challenge for CVC due to their great influence. An example is that if a software needed to be installed, at a startup or a small company, it could be done right away. However, in a large organization, procedures and decision making may delay the action. By the time the request is approved, the technology may already be outdated. Moreover, the challenges also lie in the funding. For instance, if the parent company didn’t perform well in the first quarter, funds for the startup may reduce or an initially large project may even be discontinued.

  1. Talent – At a financial VC, you gain market share, which is a good incentive. With CVC, the incentives are salaries and bonuses which may not be seen as great incentives. Another challenge is recruiting the right people who understand CVC as well as being able to retain the team.

  1. Collaboration – Large enterprises want startups to solely work for them as being the only product or service provider in the country has its advantages. On the other hand, startups want to grow and expand without any controlling entities. A great challenge for CVC is finding the right strategy to efficiently work with startups without overly controlling them.

A Corporate Venture Capital must have the ability to shift their mindsets and become strategic investors. Today, Paul has shared insights from his first-hand experience as a CVC expert. For more information on CVC, visit The Art of Being a Corporate Venture Capital and Get to Know Corporate Venture Capital (CVC) in Thailand: Overview, Highlights, and Trends.