Everything you need to know about venture capital-as-a-service (VCaaS)

In 2021, CBInsights reported that venture capital (VC) activity reached an all-time high, with funding amounting to USD 621 billion. This was a 111% increase from the previous year’s funding of USD 294 billion.

While the latest CBInsights State of Venture Q2 2022 report revealed that overall VC activity slowed down worldwide, the amount of funding raised in Q2 2022 is still well above the levels seen in 2020.

Investors worldwide are investing billions of dollars in VC, and have been doing so for more than 2 decades. Bob Zider, the founder of innovation firm Beta Group, wrote that venture capitalists invested over USD 10 billion in businesses in 1997.

VC goes back even further to 1947 when the first VC deal occurred. The American Research and Development company invested USD 200 thousand in a company developing a treatment for cancer, based on x-ray technology. Its investment was worth USD 1.8 million just under a decade later in 1955.

VC happens when investors—usually high net worth individuals, investment banks, and large corporations—provide monetary and managerial support to startups in exchange for equity. The startups they invest in have a strong potential to grow and give returns in the long run.

Investors support the growth of the startup they invested in with a common goal to significantly grow the startup. In the end, investors will sell their stake to a corporation that will then integrate the startup into its organization.

Venture Capital-as-a-Service is an evolution of the traditional VC model.

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What is VCaaS?

Venture capital-as-a-service is an innovation model where a company partners with an external business, such as Embiggen Capital, that will act as its venture capital arm. In essence, the company outsources its VC efforts, instead of building and relying on its own in-house VC arm.

The partner VCaaS firm helps the client company find potential investments, do due diligence, and manage the client’s investment portfolio to meet their strategic goals.

While the strategic goals of each company may be different, the main goal of VCaaS is the same as that of venture capital: find and invest in startups that have a strong potential for long-term growth.

As with any VC deal, each VCaaS investment deal goes through a rigorous process that ensures a company’s goals are being met and resources are being invested in the right opportunities. Embiggen Capital, our VCaaS arm, follows an eight-step process detailed below.

Embiggen Capital’s VCaaS Process

As seen above, there is an extensive half-year-long pre-investment process to ensure that an investment opportunity is aligned with a company’s strategic goals and has a strong potential to give profitable gains. 

The post-investment process varies per deal because an investment first needs to grow to the point where the startup can exit by being sold to another company or through an initial public offering (IPO). According to 2000-2021 data by Statista, it took an average of 5.7 years for startups to exit through an IPO from their initial VC investment in the United States. 

After going through this years-long arduous journey, you might be asking ‘what’s in it for the company that invested its time and resources?’

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How can VCaaS help my firm?

VCaaS is often the much better option for corporations looking to start investing through VC, as the alternative is going into the VC space without the right knowledge and people to manage its investments.

VCaaS helps de-risk investments for corporations that are not adept at VC as it is a high-risk, high-reward investment strategy. 

Some sources in 2017 claimed that 95% of VCs are breaking even or are not profitable at all, and only 5% of VCs are considered to have a successful investment. 

By employing the VCaaS strategy, corporations get to partner with expert venture capitalists who will help manage and de-risk their VC activities. These experts often have years of experience and know the signs that imply that a potential investment deal has a good chance of succeeding and providing profitable returns.

Furthermore, through VCaaS corporations will not have to start building a VC team from the ground up because the partner VCaaS firm will have a team of venture capitalists and investors at hand. The VCaaS firm can also help the corporation set up and support its own in-house VC team.

VCaaS and VC investments have the potential significantly increase a company’s bottom line. Typically, a successful investment returns more than 3 times the original funding amount.

One of the biggest VC success stories was Sequoia Capital’s USD 60 million investment in WhatsApp. It first invested USD 8 million in 2011, which was followed by a further USD 52 million investment in 2013. This investment turned into USD 3 billion a year later when WhatsApp was sold to Facebook in 2014 for USD 22 billion.

Why Embiggen Capital?

Embiggen Capital is ready to be your VCaaS partner.

We go beyond being an external VC arm. Our VCaaS model is designed to amplify the innovation processes of our partner corporations.

Our team is composed of experienced venture capitalists, entrepreneurs, and innovators who have decades of experience combined working on innovation initiatives with corporations worldwide.
Schedule a strategy session with our team today and learn how we can co-invest in the next big thing.