Only 15% reported that they receive profit sharing or carried interest and, surprisingly, nearly two-thirds don’t get bonuses based on how their funds perform. Many who work in corporate venture capital said that they aren’t sufficiently financially compensated for their successes. The long term is sacrificed for those short-term needs.” As one observed, “This is where CVC is so funny to me because to really do true innovation, you have to have a super long-term horizon, but in reality, we have a super short-term horizon. But many corporate VCs reported being evaluated on a short-term basis. Most venture capitalists judge their investments’ performance over a timeframe of a decade or longer. “If you’re not investing in startups that are financially successful, then they’re probably not giving you the strategic benefits that you’re looking for,” Wang says. One interviewee told them that their company’s investment goals were entirely strategic, not financial: “My CFO said, ‘I don’t even want you to financially track these investments - I’ll write every investment off as an R&D expense the day you close the transaction.’” Strebulaev and Wang found that some CVC arms don’t even track their financial returns. While traditional venture capital firms focus squarely on financial returns, almost to a fault, corporate venture capital can suffer from a lack of clear objectives. That’s a problem, Strebulaev says, as “different C-suite executives within organizations have very different views on how outside minority investments in innovation should work.” Some report to a chief strategy officer, some to the CEO or CFO, and others to the head of development. The research revealed that the chain of command varies widely among CVC units. Speed and agility are seen as essential having another layer in the process is thought to complicate matters and create bottlenecks. In traditional VC firms, once a partner decides to invest in a startup, the deal can be quickly finalized. Most corporate venture capital units use a two-tier decision-making process, often requiring near-unanimous approval from a committee outside the team. Strebulaev and Wang also explored how investment decisions are made. More than 60% of the senior executives Strebulaev and Wang spoke with confided that their parent companies do not understand the norms of venture capital. The interviewees mentioned corporate and financial constraints as well as a general lack of knowledge about venture capital among corporate leadership. “That alone was a big revelation.” Parents Don’t UnderstandĪnd the way these CVC arms are organized, he adds, is not very efficient. “There is no one-size-fits-all,” Strebulaev says. One of the most striking things they discovered was that no two corporate venture capital units are organized alike. companies, representing almost 80% of all CVC units in the S&P 500. Over nine months, Strebulaev and Wang interviewed senior investment professionals working in the VC units of 74 U.S. That’s why Strebulaev, working with GSB research fellow Amanda Wang, has been focused on revealing what’s inside the black box of corporate venture capital units. Traditional venture capital firms, though also secretive, typically follow a well-worn playbook for structuring leadership and decision-making processes for their investments. However, Strebulaev notes, the inner workings of these corporate venture capital units have been largely hidden. In 2020, corporate venture capital arms invested more than $70 billion in startups, accounting for a quarter of all VC deals. Yet it’s only in the last decade that corporate venture capital (CVC) has gained traction as a way to remain relevant and stay ahead of competitors. Historically, large corporations kept up with innovation through in-house R&D and mergers and acquisitions. “The big reason why was their failure to innovate.” ![]() “If you look at the large Fortune 500 companies 50 years ago, many of them no longer exist,” says Ilya Strebulaev, a professor of finance at Stanford Graduate School of Business. No company wants to be the next Blockbuster, Sears, or that one nobody even remembers anymore. Innovation is key to a corporation’s survival.
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