Corporate Venture Capital is growing rapidly. It is one of the fastest-growing segments in venture capital. According to Pitchbook, the median venture capital investment was $1.2 million in 2023 and $1.6 million in 2024. This compares to median M&A price tags of $15 million in 2023 and $28.7 million in 2024. This means a single M&A typically costs 12.5x that of a venture investment in 2023 and 17.9x in 2024. 

Marc Vartabedian, Sara Castellanos, and Steven Rosenbush of The Wall Street Journal wrote an article entitled “Corporations Outside of Tech Ramp Up Venture Investing,” citing the growth of non-technology corporations doubling down on venture investing. 

But why are more companies, especially those outside the technology industry, launching venture capital arms? 

The rationale is that the venture capital process creates a disciplined approach to bringing external innovation into the corporation. 

Venture capital has four main activities: sourcing, diligence, transacting, and portfolio management. These are the same activities that corporations need to excel at to bring external innovation into their respective organizations. Let’s explore each of the four activities in more detail: 

1. Sourcing 

The typical venture capital investor will source several hundred new deals a year. In corporate venture capital, sourcing is often targeted to specific industries. The best corporate venture capital firms have experience and relationships to generate not only the quantity but also the quality of the opportunities. As my Cerity Partners Ventures co-founder, Scott Lenet, explains, “The principle of selectivity: better decisions are driven by having a lot of choices. Generating high volumes of potential deals requires an established reputation, sourcing relationships, and a team that can process the deal flow.” 

2. Diligence (Evaluating) 

Once you generate and review the deal flow, the real value of the corporate venture capital process is the filtering of that deal flow. Whether your corporation is evaluating a potential start-up company as an investment, business partner, or even an acquisition target, you will require a process to diligence whether that start-up company is a viable candidate. That due diligence process should assess the four major risks to a start-up company: market risk, people risk, technology risk, and financing risk. 

3. Transacting 

After successful completion of due diligence, it is now time to transact. In corporate innovation, transactions can take many forms: a straight investment, an investment coupled with a commercial relationship, or a commercial relationship only. Perhaps the opportunity is so strategic that the corporation decides to acquire the company outright. A good first step might be for the corporation to enter into a pilot that can help the start-up assess product/market fit and the corporation to continue their diligence on whether the target company is the right partner. 

4. Portfolio Management 

Whether the transaction is an investment, a commercial relationship, an acquisition, or any combination thereof, the most important activity is portfolio management. Due diligence does not end at the transaction; a best practice of portfolio management is that the start-up diligence process continues. However, as illustrated below, managing acquired companies, investments, and commercial partnerships can require more time than all other activities combined: 

Graphic showing the lifecycle of corporate innovation deals

Management does not end until there is a successful exit (you could argue this is the fifth activity of venture capital), and in the case of corporate innovation, that could be the start-up investment or partner has sold itself to the corporation or has been acquired by another strategic buyer or has gone public. 

Corporate Venture Capital Will Continue to Grow 

In summary, corporate venture capital creates a process to source hundreds of opportunities, filter and diligence them, and transact and manage them. It is no surprise that framework is the same one corporations are turning to for driving innovation. 

More corporations will continue to launch corporate venture arms for this reason. And yes, corporate VC is here to stay. Even in the event of an economic downturn, innovation never ends. We will continue to see the growth of large corporates turning to corporate venture capital to access external innovation.  

Learn more about corporate venture capital solutions through Cerity Partners.  

Please read important disclosures here.