By Michael Chaffe, Wolves Summit CEO
Corporate venture capital (CVC) investment can be a real game changer for startups fortunate enough to attract it, but it has traditionally been difficult to secure. Many startups have tended to take the view that winning CVC at an early stage is just not realistic, instead focusing their attention on private venture capital and angel investors.
While the usual VC fund cycle is five to 10 years, the CVC fund cycle often lasts much longer because the investor is looking for a strategic partnership with the younger company. Until recently, attracting this type of investment was something of a holy grail for startups, as CVC investments in new ventures were few and far between.
But the times they are a-changin’. The value of CVC deals has risen every year for the last decade, with investments soaring by 400 percent between 2013 and 2018, according to Corporate Venturing Research. The tech landscape is changing more quickly than ever and bigger companies are looking to startups to help them innovate. 2020’s increase in CVC investment was spurred on by corporate engagement in some of the year’s largest rounds overall – such as Swedish battery producer Northvolt’s $600m round, which included participation from Volkswagen Group.
Investors of all types are actively eyeing opportunities across the European startup map, especially in Central and Eastern Europe. In 2020, CEE attracted €358 million in venture capital investment while private equity exits reached €1.4 billion, according to Invest Europe. CVC investment will be one of the hot topics at this autumn’s Wolves Summit, the largest startup and tech focused business conference in CEE, which is being held 19th-21st October in Wroclaw, Poland.
Maximilian Schausberger is Managing Director at Elevator Ventures, an arm of Raiffeisen Bank (RBI) that aims to be the leading corporate venture capital growth partner for fintechs in CEE. He explained why it is a good time for startups to add CVC to their target list as they court investors:
“We are seeing much more corporate venture capital investment flowing into CEE. Corporate investors constituted 20 percent of total funds raised in 2019, up from just four percent in 2018. We believe that corporates can play an important role in financing the growth phase of startups, especially in diverse and fragmented areas such as CEE,” said Schausberger, who will be joining the panel discussion on CVC at October’s Wolves Summit.
Beyond funding, CVCs can provide a range of unique benefits to their startup partners. They often invest in startups that align with their own research and development goals or complement their own operations. A large, established company can offer scaling opportunities to an early-stage startup, including access to clients and a path to internationalisation.
A strategically-minded CVC is not driven exclusively by returns – but also value innovation, as it looks to learn about new technology that can benefit its parent companies. Electric vehicle manufacturer Arrival’s round was an example of this: it was backed by UPS, which will in turn order 10,000 Arrival vehicles.
CVCs can also help with commercialisation. One challenge that many startups face, especially with new technologies, is proper testing of their solutions within a “live” business environment. With CVC involvement, the larger corporation can provide an ideal testing ground for the startup’s product.
But startups do need to do their due diligence before rushing into embracing corporate venture capital. Elevator Ventures’ Maximilian Schausberger explained why, saying: “When assessing a CVC, founders should look at the corporate’s overall approach to startup collaboration.Especially for CEE, I recommend engaging with CVCs that can realistically assess the risks and opportunities in your business field and your particular target geography.”
Want to learn more about the pros and cons of CVCs?
Plus all the other hot topics on the CEE startup scene?
Join us at Wolves Summit on 19th-21st October 2021 in Wroclaw, Poland – and online!