Corporate VCs Are Moving the Goalposts

Most people are familiar with the traditional approach to venture capital: An investment firm carefully parcels out capital to a portfolio of start-ups, knowing that most will fail—but that with luck, the financial returns from the handful of winners will make the exercise extremely profitable. For more than 40 years, however, another model has also existed: corporate venture capital, in which a very large company invests in start-ups, often in adjacent industries. While traditional VCs are all about financial returns, most corporate VCs are motivated by strategic payoffs. They recognize that big companies often can’t match start-ups’ ability to create breakthrough innovations, so they use their in-house VC operation to gain insight into new products that could affect their competitive position—and perhaps to get a jump on acquiring the start-up if its innovation turns out to be a game changer.