Recently, some large corporations have begun to create venture capital (VC) arms that partner with and fund smaller enterprises. Companies in search of capital may not be thinking about this opportunity – but perhaps they should be.?Corporate venture capital units help their parent companies identify profitable new projects, spot promising technologies and collaborate with the best minds in the marketplace.?Wharton management professor Gary Dushnitsky knows the space well. He says that the best-known example is Intel, whose venture capital unit has invested in such entrepreneurial success stories as Red Hat, the North Carolina software distributor, and WebMD, the online medical-information company.
But, he says, companies as far-flung as Motorola, GlaxoSmithKline, Comcast, Johnson & Johnson and UPS also have venture capital units.
“These companies are looking for investment opportunities,” says Dushnitsky. “They know that innovation is for the long run and you need to be in that space if you want to be in the game in a few years.” Noting that traditional venture capitalists are playing it tighter to the vest than they were a few years ago, he says that despite rumors to the contrary, corporate venture capitalists are looking for ventures. “Money is out there,” says Dushnitsky. “They are actively looking for businesses to invest in.”
Aside from getting funding, smaller companies can benefit from working closely with larger, more established corporations. “Corporate VCs have serious business activity and market presence that may affect your business and your activity,” says Dushnitsky.
These corporate venture capital units want to make sure that their funding will build the businesses they invest in while benefitting the bigger corporation as well. “Most corporate investors seek small businesses that can somehow create an opportunity to stimulate the big business,” says Dushnitsky.
“Maybe the new business creates a technology that the corporate venture capital business needs.” Or perhaps the small company can help generate demand for what the bigger corporation sells. “In addition to the fact that funding is now available,” notes Dushnitsky, “you have the opportunity to tap industry experts.”
For example, Google recently announced plans to launch an internal venture capital group. Considering its phenomenal success as a venture-backed star-tup, Google’s internal VCs are likely to offer guidance and insights to new start-ups that go far beyond what a private VC firm brings to the table.
After all, the people working at corporate venture capital divisions may have shaped their industries. “They know their own strategy in the market place,” says Dushnitsky. “They have knowledge of the past and an impact on the future. You can hear from these people where the market is headed, where technology is headed.”