What Startups Should Consider When Exploring Corporate VCs
Nicole LeBlanc is a partner at Toyota's growth fund, Woven Capital, focusing on mobility, sustainability and smart city investments.
In today's economic climate, corporate venture capital (CVC) is gaining traction among founders as a critical investment partner. The numbers tell a compelling story: Although CVCs invest in less than a quarter of funding rounds, CVC-backed startups are twice as likely to raise follow-on funding and experience half the failure rate compared to companies backed solely by traditional venture capital (VC) firms.
Given this, founders are increasingly faced with the decision of whether to turn to traditional VC or go with CVC investments. From my time as a partner at a CVC, I've found there are three key considerations startups looking at CVC backing should take into account.
When evaluating CVCs, founders should first consider what I like to call the "phone-a-friend" advantage: access to the entire corporation's brain trust. Ask whether the CVC's parent corporation would provide access to its network of subject matter experts. This can help you gain invaluable insights that might otherwise take years to develop independently. This expertise can translate into real-world product feedback and validation for startups.
The journey from innovative startup to market leader is fraught with challenges, particularly around scaling production and sales. As such, founders should ensure they're prioritizing CVCs that will provide access to mass production expertise, guidance and, yes, a bit of hand-holding. The firm you choose should be willing to educate and support you on the longer sales cycles that enterprises require. Founders who look for this form of strategic partnership can find valuable insight that helps them strengthen relationships with key decision-makers and accelerate market access.
While many CVCs operate with similar return expectations as traditional VCs, CVCs typically have a parallel goal of seeking strategic value and insights from innovators while pursuing returns. This can translate into greater patience as CVCs seek to better understand new, fast-changing technologies and markets, which in turn can deliver greater payoffs across the parent company.
Founders considering a CVC should ensure they're committed to long-term value creation over short-term gains. When navigating market turbulence and election cycles, sustained support can allow companies to extend their planning horizon, map out their road maps 18 months or more in advance and enable greater flexibility.
The CVC landscape is undergoing a profound transformation. Historically viewed as slow-moving corporate extensions deploying small checks to buy strategic insights on the cheap, I'm finding that today's CVCs are becoming increasingly sophisticated operations that feature dedicated investment teams who combine startup speed with corporate muscle.
This evolution is reflected in the numbers: In 2023, 12% of U.S. rounds were backed by corporate investors. This is a clear signal to me that CVCs are no longer just corporate innovation theater; they're becoming serious, committed partners in the startup ecosystem.
For founders navigating today's fundraising environment, understanding the strategic value of CVC partnerships is more crucial than ever. Startups should ask themselves: Does the CVC's broader ecosystem offer potential benefits to my business, and has the corporate investor shown proven success with startups in similar industries?
Not every CVC will be a fit for every startup. It's essential that startups look for CVCs that align with their target audience or market while ensuring there's no conflict of interest. Concerns around limited exit options—as CVC involvement can sometimes constrain future acquisitions or IPOs—and hesitation to share sensitive information with a potential competitor affiliated with a CVC are key points to consider. The best CVC-startup relationships are those where everyone shares the same strategic goal. Those startups that won't benefit from strategic insights or influential market connections may find more value in traditional investors.
But in an era when capital efficiency and strategic growth matter more than ever, CVC partnerships may offer a compelling path forward. For startups that decide a CVC is the right choice for them, they can gain a partner who delivers value far beyond the check.
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