Corporate Venture Capital Investments
The global economy is witnessing the early stages of a market revolution where business stakeholders must adapt and flourish in the face of emerging 21st century demands. At present, resource limitations are demanding a better supply chain efficiency and transparency.
There are significant opportunities for those with the ability to perceive the future. The key to corporates booming would be, in no small part, how efficiently they invest in viable solutions that protect their business as well as the societies in which they function.
Business leaders must take big risks to ensure excellent rewards. They are slowly realizing the effects of the trends on their business strategy. As circumstances transform, so must strategy; and as strategy transforms, so must the creation and distribution of capital.
In the background of the 2008 market fall, firms have been seen hoarding cash on their balance sheets in an attempt to construct a safe buffer around the business. Investors and business stakeholders are exploring efficient methods to use the cash.
Leveraging their investment skills, corporate venture capitalists invest money as well as their expertise to ensure their investments grow. However, their emphasis on both financial returns as well as alignment with the strategy of the parent organization differentiates corporate venture capitalists from normal VCs.
While corporate venture capitalists may not necessarily hold investments for 10 years, they must comprehend the transformational change in order to identify and back successful start-ups.
Increasingly, they are investing capital into deals with possibly breakthrough results for businesses and communities globally.
This capital flow could supplement and associate with the increasing, global impact investment movement.
Impact investors are focused on delivering positive social and environmental results, while accomplishing a financial return. They have a wide array of appropriate investment products and a comprehensive expertise of social and environmental issues in critical markets, including possible deal flow.
Corporate venture capital cannot independently solve all the global issues, clearly, but by comprehending the risk factor of this type of capital, the impact investment stakeholders can begin to identify co-investments and partnerships that could assist transform the way future global challenges are tackled.
The corporate venture capitalist normally has two objectives:
Finance
Delivering financial return for the company. Due to increasing cash on balance sheets, monetarily driven CVC investments are seeking to take some risk in exchange for high returns.
Strategy
Developing competencies, access and markets of the parent organization, aligning with the long-term strategy. Various CVC units must be established to focus on various aspects of the strategy. They usually adapt and evolve over a period.
A strategic CVC investment would identify and enhance interactions between itself and the venture. In order to do so, it would deliver management expertise and other types of skills to the investee.
Financial goals are required to ensure internal support, while CVC’s capability in meeting strategic goals would be critical to long-term success. Every fund decides how they wish to balance these strategic and financial results.
Though financial metrics are normally well-established, firms recognize there are “intangible” returns that are difficult to quantify in the short- and medium-term.
There are a series of CVC waves impacting governments, business, and capital markets. These waves are driven by a combination of various factors:
· Growing consumer demand
· Drive for market-based public services.
· A burden on natural resources.
· Business model transformation.
The critical sectors that have the potential for corporate venture capital investments are:
Cleantech
Any investment in Cleantech has normally emphasised on technology that would decrease our dependence on fossil fuels, while pre-empting consumer demand and government regulation.
Education
Increasing education costs in developed economies have been a key issue. Many start-ups seek to solve this issue through delivering online learning solutions. Corporate venture capital funds are very much active in the educational sector.
Health
Increasing life expectancy along with the growing occurrence of chronic diseases is increasing the overall costs of healthcare delivery. Technology start-ups have contributed to tackling these issues by improving access to healthcare, while generating revenues to secure venture capital investment.
Urban Infrastructure & Transportation
Innovation in urban infrastructure has concentrated on community-oriented information and big data. Investments in urban infrastructure & transportation have excellent financial returns projection.
Financial Inclusion
Financial inclusion focuses on assisting low-income families around the globe access various financial services. Corporates are also seeking to build financial inclusion services, identifying its influence on markets and communities.
Agriculture & Food sector
There has been a tremendous effort in the agriculture & food sector, focused on enhancing supply chain viability through community projects in rural areas of developing nations. This is an area of interest for corporate venture capitalists.
In order to negate current and future international challenges, the global investment community must work together – sharing deals and co-investing in solutions that have an optimal chance of success.
The focus must be on breakthrough levels of innovation that are transparent and ready for the future. The social economy delivers an excellent area for corporates to explore. Challenges exist, but with the correct idea, the challenges can be overcome. Corporate venture capital investments would increasingly play a vital role in the social economy in the future.
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