Corporate venture capital is a subsidiary of a corporation that invests in business ventures outside of the core business. It can underwrite operating costs, handle initial building and equipment costs, and generate returns through shares or loan repayment.
Corporate venture capital is understood to be an arm or subsidiary of a corporation that has responsibility for managing venture capital in connection with the company’s investment activity. Sometimes referred to as corporate venture capital, the purpose of corporate venture capital is to allow corporations to invest in business ventures that are outside the immediate scope of the core business, but are still of some interest to the corporation.
Venture capital is generally understood as resources made available to assist in the establishment of a new business, or to help companies that exhibit growth potential to expand and existing operations. In the case of corporate venture capital, the source of these funds is another well-established company that wants 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 operating resources of the sponsoring corporation.
Corporate venture capital can be used to help new or small businesses in a number of ways. Depending on applicable laws, the subsidiary may underwrite the operating costs of the small business for a period of time, allowing the new company to find a niche market and start generating income. In the case of a small established company that wants to launch a new product or open a new production facility, corporate venture capital can be used to handle the initial costs of building and equipping those new facilities. As long as the shares are within the limits of local laws, the funds may be used in any way that is acceptable to both the sponsoring corporation and the recipient.
The rate of return that a corporate venture capital approach generates will vary from instance to instance. In some cases, the return may be in the form of shares issued by the receiving company. At other times, the repayment may be the full repayment of the loan amount, plus a fixed or variable interest rate. In general, the options for a return on investment are described in the terms and conditions that govern the extension of funds to the recipient.
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