Corporate VCs, the underrated venture capitalists in our society

When we think of the venture capital scene, we usually think of Marc Anderssen, Josh Wolfe, Chris Sacca, the Shark Tank investors, etc. The people that make venture capital investing look sexy. The investors that have the most fascinating philosophies business. People with fascinating perspectives on the business world.

In light of the fiascos happening in the startup world like WeWork’s difficult situation and many startups struggling to make revenue in a pandemic, many venture capitalists are stressed. For the venture capital firms that have a lot of dry powder, they’re continuing to finance their startups’ convertible bonds and equity offerings. And there are other problems that venture capital firms are dealing with like stopping their startups from burning more cash in a recession.

With the venture capital firms struggling to keep their startups afloat, the corporate venture capital world seems to be doing fine. Google’s VC arm, Google Ventures, seems to be relaxing and allowing their startups to continue focusing on their mission while the world seems to be collapsing. Numerous startups that have big corporations as their investors seem to be minding their own business during these tough times as well.

Why does it seem like the corporate venture capitalists (CVCs) seem to be doing better than the pure venture capitalists themselves? Is it because they like to keep things secret?

In reality, because the big corporations like Google and Johnson & Johnson have more resources, they’re able to help their startups survive the ups and downs of the economy and in their business.

When I talk about resources, I don’t only mean money (though corporations have a lot of cash in their balance sheets). What I mean by resources is cash, human capital, equipment, connections, etc.

A venture capital firm has cash and connections but they usually don’t have a laboratory full of equipment that a scientist can use to work on their research or a team of scientists that can help them whenever they need help. They’re just investors and only play the role of the investors.

For CVCs, they have laboratories that scientists can work to continue progress on their research and have technical employees that can help them with issues relating to technology and science.

Imagine being a biotech startup and having Johnson & Johnson as one of your investors. Being a part of J&J’s VC arm, J&J will provide you with whatever you need to become successful. You have a mission that is really valuable and they want to reap the value of investing in your mission. It wouldn’t make sense for a CVC to not allow their employees to help one of their startups with a problem that they can fix because if that startup collapses from that technical problem, then the CVC will experience a loss. No one wants to experience losses from their investment.

While venture capitalists also want to see their startups succeed, because they don’t have the same resources as a CVC, they can’t do a lot when helping startups. If a startup needs to use an expensive piece of equipment, a venture capitalist would most likely have that startup go through another fundraising round to finance the use of that equipment. For a CVC, most likely they would have that expensive piece of equipment and allow their startup to use it as well.

Every CVC is different but if there are a few things every CVC has in common, it’s that they want their investments to succeed and that they have a lot of resources that they’re willing to let their startups use. Because of their capital structure, CVCs are more equipped to handle the worst-case scenarios a startup has to go through.