venture capital firm organizational structure

A limited partnership is made up of at least one general partner (“GP”) and one limited partner (“LP”). Limited PartnershipsĪ CVC program can be structured as a limited partnership operating as a separate legal entity from the parent company. These considerations are beyond the scope of this article. Many factors should be considered when establishing the appropriate structure for a CVC program, including tax considerations. There are three main types of legal structures for CVC programs: limited partnerships, investment via an affiliate, and fully integrated programs. Choosing a Legal StructureĪ CVC program’s strategic and financial objectives will inform how closely the program will coordinate with the corporation’s current operations-that is, its legal structure. In addition to financial returns, the other goals of a CVC program could be to (i) identify and capitalize on synergies between the corporation and emerging company, (ii) develop the corporation’s technology, (iii) acquire the emerging company’s technology, and/or (iv) create commercial partnerships.įor the emerging company, and in addition to funding, a CVC program can offer (i) access to resources, (ii) access to customers, (iii) market knowledge, (iv) brand validation, and (v) wider networks.Īs such, CVC programs may look to invest in emerging companies that operate in the same or complementary industries. However, CVC programs, once known as strategic investments, also strive to advance the company’s strategic objectives. Both CVC programs and traditional venture capital funds are driven by financial returns. Objectives of a CVC ProgramĬVC programs are similar to traditional venture capital funds in that the goal is to invest in emerging high-growth companies that drive value back to the company. The term CVC both broadly captures strategic investments made by large and established corporations in emerging companies and also more narrowly refers to investments that a corporation makes through a related CVC arm dedicated to sourcing and making investments in start-ups, rather than through direct strategic investments. CVC programs allow companies to gain insight and access to new markets, trends, and technologies. Corporate Venture Capital Programs DefinedĬVC, a subset of and different from traditional venture capital, is the investment of corporate funds directly into emerging companies.

CVC programs can also form alliances with emerging companies that may be potential customers or strategic partners. For emerging companies and start-ups, CVC programs offer funding as with traditional venture capital funds but can also provide such companies with market and development support. Corporations that have established a CVC program can gain invaluable market intelligence, as well as invest in and understand future acquisition targets. To address these concerns, corporations have increasingly looked to establish a corporate venture capital (“CVC”) program to support and complement their innovation strategies and outsource strategic alignments to stay competitive. A purchaser may also face issues when attempting to integrate the target into its existing business-particularly when the purchaser is a multinational corporation and the target is an emerging company. Innovation through acquisition also has its risks, as the purchaser may not identify all of the potential issues of the target when conducting its due diligence. Yet, innovation through R&D can have its limitations as it is funded internally and can be restricted by internal policies and procedures that may hinder innovation. Traditionally, corporations focused on internal research and development (“R&D”) and acquisitions of strategic targets. Corporations continue to look to innovation to increase value and expand capabilities.

Venture capital firm organizational structure