Corporate venture capital mainly buys radar and options, not profit.

Evidence

While financial gains are of course an element of this investment strategy, studies show that strategic goals are also a key reason for corporate venture capital. Massive corporations become less agile and able to respond to market changes; CVC allows them to engage in research and development by proxy, acquiring resources and intellectual property from their ventures. This strategy allows big companies to gather information on new markets and technologies, monitor their growth, and enter them more easily. “It’s like a radar for the company,” as one venture capitalist working at a major media corporation told me. Identifying and assessing potential acquisition targets is another key function of CVC; the investment can even be made with an option to acquire the portfolio company if certain metrics are reached. CVC is also used by corporations to hedge their bets, ensuring that they are strategically placed in regard to emerging technologies, ready to act when the dominant design prevails. — Andrew deWaard, Derivative Media, 152

Categorization

• DEFINE: Defines corporate venture capital’s strategic functions: R&D by proxy, market radar, acquisition options, hedging.