What is Corporate Venture Capital?

Corporate venture capital is understood to be an arm or subsidiary of a corporation that is charged with the responsibility of managing venture capital as it relates to the investment activity of the company. Sometimes referred to as corporate risk capital, the purpose of corporate venture capital is to allow corporations to invest in business enterprises that are outside the immediate scope of the core business, but are still of some interest to the corporation.

Venture capital in general is understood to be resources that are made available to aid in the establishment of a new business, or to assist companies that exhibit the potential for growth to expand and existing operation. In the case of corporate venture capital, the source of these funds is another well-established company that wishes to invest in that potential. By making the venture capital investment through the mechanism of a corporate venture capital subsidiary, the investment can be managed through a specific corporate setup without drawing on the operational resources of the sponsoring corporation.

Corporate venture capital may be employed to assist new or small businesses in a number of ways. Depending on applicable laws, the subsidiary may underwrite the operational costs of the small business for a period of time, allowing the new company to find a market niche and begin to generate revenue. In the case of an established small company that wishes to launch a new product or open new production facilities, corporate venture capital may be utilized to handle the initial costs of building and outfitting those new facilities. As long as the actions are within the limits of local laws, the funds may be utilized in any manner that is agreeable to both the sponsoring corporation and the recipient.

The rate of return that is generated by a corporate venture capital approach will vary from one instance to the next. In some cases, the return may be in the form of shares of stock issued by the recipient company. At other times, the return may be full repayment of the loan amount, plus a fixed or variable rate of interest. Generally, the options for a return on the investment are outlined in the terms and conditions that governed the extension of the funds to the recipient.