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Key Points:
- Corporate Venture Capital (CVC) and Venture Clienting are two strategies used by corporations to access startup innovations and technologies.
- CVC involves direct financial investment in startups, offering potentially high returns and strategic insights but with significant risks.
- Venture Clienting focuses on becoming early adopters or customers of startup products, providing a quicker, lower-risk approach but with limited financial upside.
- The article provides a detailed comparison of both models, including pros, cons, and real-world examples to help corporations make informed decisions.
New ideas and technologies can change entire markets overnight, and startups are leading the way with cutting-edge innovations at an unprecedented rate. So, it’s no surprise that a growing number of corporates are partnering with startups as a way to fuel growth.
Two of the most commonly used strategies to achieve those goals are Corporate Venture Capital (CVC) and Venture Clienting:
- Most of the top 100 US companies in the Fortune 500 have active CVC units.
- 40% of respondents in a study reported their companies had venture client units.
Both these models are designed to fuel innovation and future-proof businesses with a constant pipeline of products, solutions and services, enabling them to successfully navigate even the most unpredictable of market conditions. However, they operate on different principles, each offering distinct advantages and challenges.
So, how do you know which approach works best for your unique set of goals, challenges and assets?
In this article, we’ll take a closer look at each model, diving into the pros, cons and some real-world success cases to help you make an informed decision.
Let’s kick things off with some context.
What is Corporate Venture Capital (CVC)?
Corporate Venture Capital involves established companies investing their financial resources directly into external startups. The approach enables companies to gain strategic insights, access new technologies, and potentially benefit from the financial returns of successful ventures.
The pros of CVC:
- Financial returns: CVCs can generate significant returns on investment if the startups they back take off.
- Strategic insights: Investing gives corporates a front-row seat to emerging trends and technologies.
- Ecosystem building: CVC can help create a supportive ecosystem around the corporation's core business.
- Talent Acquisition: Successful investments can lead to acqui-hires, bringing entrepreneurially minded talent into the corporation.
The cons of CVC:
- High risk: Startup investments are inherently risky, with a high failure rate.
- Need for autonomy: Corporate bureaucracy can slow down investment decisions, potentially missing opportunities.
- Misaligned goals: The goals of the startup and the corporation may not always align, leading to conflicts.
- Resource intensive: Running a CVC arm requires significant financial and human resources.
CVC units examples:
Examples of CVC units include:
These units have specialised teams and resources dedicated to scouting, engaging, and investing in startups that align with the parent company's strategic goals. These units typically operate as part of a broader corporate innovation ecosystem.
What is Venture Clienting?
Venture Clienting involves corporations becoming early adopters or customers of startup products and services. This approach focuses on creating business relationships rather than equity investments.
The pros of Venture Clienting:
- Lower risk: Lower risk compared to equity investments, with solutions tested in real-world environments before implementation.
- Immediate impact: Directly addresses specific challenges with new solutions.
- Speed: Becoming a client is often quicker than making an equity investment.
- Flexibility: The ability to tailor requests to specific needs or challenges.
The cons of Venture Clienting:
- Unlike CVC, there's no potential for significant financial returns from equity appreciation.
- Less control: As a client, the corporation has less influence over the startup's direction.
- Integration: Scaling startup technologies to suit corporate needs can be challenging.
- Dependency risks: Relying on startups for critical functions can be risky if the startup fails.
Venture client unit examples:
Examples of venture client units include:
These units have dedicated teams and resources to identify, engage and onboard startups with relevant new solutions. In most cases, they coexist alongside other corporate venturing activities.
Venture clienting vs CVC: Which is right for you?
Before we start, it's worth noting that these models are by no means mutually exclusive. In fact, most companies find value in implementing both, using them to complement each other.
Consider starting with one model and gradually incorporating elements of the other as you gain experience and refine your growth targets. To help you find your ideal starting point, we’ve highlighted some of the key differences between these two models below.
Based on the key differences listed above, choose the model that best aligns with your innovation strategy and broader strategic goals.
7 Tips for Effective CVC and Venture Clienting
Tip 1: Use the venture client approach to explore more technologies quickly.
While CVC units typically invest in just a few startups each year, venture client units offer more flexibility and require less financial commitment, allowing companies to explore a significantly broader range of new technologies.
- Set ambitious goals for pilot projects (e.g., aim for 50+ annually)
- Track adoption rates and financial impact to demonstrate value
Tip 2. Use CVC investments to gain strategic influence and control.
Invest in startups to secure a seat at the table, ensuring influence over product development that aligns with your industry needs and securing a first-mover advantage.
Tip 3. Use both models to be “proactive” and “reactive”.
Combine venture clienting and CVC to cover all your bases:
- CVC investing is more proactive — it positions your company to scout and invest in potentially disruptive innovations that prepare you for future market shifts.
- Venture clienting is more reactive — it allows your company to quickly address and integrate solutions for immediate business needs or problems as they arise.
Tip 4. Target your startups strategically.
If your company needs mature, market-ready solutions, venture clienting is ideal as it targets startups that already have developed products. On the other hand, if you are willing to nurture and grow with a startup, helping them develop their products from an earlier stage, CVC would be more appropriate.
Tip 5. Define clear roles to foster successful collaborations.
- For CVC teams: Focus on facilitating connections and maintaining strategic oversight.
- For Venture Client teams: Take a hands-on approach in coaching startups and business units.
Tip 6. Streamline decision-making processes.
- Develop fast-track approval processes for pilot projects and investments.
- Empower teams with appropriate autonomy to make quick decisions.
- Regularly review and optimise internal processes to reduce bureaucracy.
Tip 7. Measure and communicate impact to secure buy-in.
- Develop comprehensive metrics to measure the impact of both CVC and Venture Clienting activities.
- Regularly report on financial and strategic benefits to key stakeholders.
- Use success stories and impact metrics to secure ongoing support and resources for innovation initiatives.
Final thoughts
Whether you’re choosing between these models—or using both—make sure your decision lines up with your company's goals, how much risk you're comfortable with, and your available corporate assets.
For more inspiring examples, check out our report: 25 Corporate Innovation Programs.
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Are you looking for new ways to fuel company-wide innovation and create new revenue streams? We can help you leverage existing corporate assets to build your corporate venturing unit and pave the way for the future growth of your business.
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