Corporate Venture Capital (CVC) in Enabling Innovation

In recent years, it is becoming increasingly apparent that corporate innovation is crucial for the survival of any business. There are many cases in which big corporations of the past end up being replaced by startup newcomers that offer newer and more innovative value propositions. 

These startups have shown to have the capacity to disrupt entire industries and capture a great deal of market share that these larger corporations previously held. 

Considering the gravity that innovation holds for large companies to maintain their market share in their particular industries, companies need to begin establishing the right corporate innovation systems and structures in order for them to thrive in the long run. 

One way corporations ensure that they continue to innovate and thrive far into the future is to engage in Corporate Venture Capital.

What is Corporate Venture Capital (CVC)?

Companies that invest their funds in high-potential external startups that possess innovative qualities are practicing Corporate Venture Capital (CVC). Companies that invest in these startups by entering into joint-venture agreements and the acquisition of equity stakes. 

In addition to providing funding for these startups, companies that practice CVC often provide their expertise in management, strategic direction, and marketing as a means to further the growth and maximize the potential of the startup they are working with. 

The level of direct involvement that corporations have in the operations of the startups that they invest in indicates that the CVC is very strategic in nature. A strategically-driven CVC aims to meet the overall company objectives through directly working with startups that possess new technologies and resources that the venturing company seeks to leverage as a means to further its reach. 

As a whole, CVC enables incumbent and well-established corporations with the nimbleness that startups often have in terms of innovation and disruption. 

According to an article on HBR, companies that engage in the practice of CVC are able to navigate through business environments significantly faster and cheaper through CVC than they would with R&D. This is because corporations can more easily realign funding toward other investments when engaging in CVC.

The practice of CVC enables companies to respond to changes with regards to utilizing emerging technologies and innovative business models much better than they would without it. 

A Signal of Philippine Corporate Innovation – Establishment of Formal Venture Capital (CVC) Divisions in Major Corporations

Over the past decade, many established corporations in the Philippines and around the world have launched their own corporate venture capital arms.  This is a signal of the future of corporate innovation in the country.

A notable example is Kickstart Ventures, Inc., a wholly-owned subsidiary of Globe Telecom. 

Kickstart Ventures, Inc., was put in charge of managing Ayala Corporation’s $150 million Ayala Corporation Technology Innovation Venture (ACTIVE) fund. This venture capital fund is to be used to invest in innovative startups that deal primarily with fields such as data analytics, artificial intelligence, fintech, retail, and real estate. 

Another example of a formal corporate venture capital arm in a Philippine-based company is JG Summit Holdings, Inc’s JG Digital Equity Ventures. 

According to an article on BusinessWorld, JG Digital Equity Ventures handles a $50 million fund meant for investments in emerging technologies and digital ventures from Southeast Asia. Its investments primarily deal with new media, retail, consumer sector, financial services, digital health, and logistics. 

Despite some Philippine companies not establishing formal venture capital arms, other big corporations still invest in startups through merger and acquisition (M&A) deals and the deployment of capital. 

PwC Philippines detailed some of these investments in their 2020 Philippine Startup Survey. They included:

  1. ABS-CBN and Summit Media investing in Kumu, a Filipino live streaming platform startup, 
  2. Ayala Health investing in AIDE, a home care mobile app,
  3. 2GO Group, Inc. investing in Mober, an on-demand delivery platform.

The support that these corporations have shown towards innovative startups can serve as a signal for a much bigger trend in technology and its importance in the survival of businesses moving forward. 

Through the numerous investments made by these corporations, it is clear that a lot of value is put in the services, resources, and technologies that many startups specialize in. 

Investing in these innovations early on may serve as an indicator for the intent of corporations to maintain their market share for the long run and help them become forerunners of what eventually becomes the norm of the industries that they deal in. 

Corporations that identify innovative startups and invest in them early may lead industry and market disruptions through their investments instead of becoming one of those that are disrupted.

Embiggen recently launched Embiggen Capital, our very own venture capital arm. We help connect individuals, startups and corporations looking to innovate and disrupt through venture capital. 

Get in touch with our team to learn more about our Venture Capital as a Service (VCaaS) offerings.

This article was updated on March 28, 2022.