CVCs offer funding, access to resources such as experienced business unit leaders, marketing and development support, and the halo-effect of an established brand. But interested startups should be aware of the potential drawbacks. This paper represents the findings of an in-depth survey of the CVC landscape, explains the types of CVCs and their objectives and provides a step by step guide to determine whether a specific CVC matches the start-ups' needs.
In the first half of 2021 alone, Corporate Venture Capital funds (CVCs) around the world inked more than 2,000 deals worth more than $70 billion. It’s an increasingly prevalent alternative to traditional funding options such as VCs and angel investors — but how can entrepreneurs determine whether a CVC is the right fit for their startup? In this paper the authors discuss the results of a series of quantitative analyses and qualitative interviews exploring the CVC landscape, identifying four common types of CVCs and three recommendations for founders considering a CVC investment.
The use of private capital in investor portfolios has grown tremendously over the last 20 years, aided by the public success of U.S. endowments like Yale and Harvard, who were early adopters of venture capital and private equity. In this paper, the aspects of private capital’s history, its long-term growth prospects, and why an increasing number and range of investors are utilising the private markets globally are reviewed.
The overall private capital industry has grown significantly over the last 20 years. Assets under management (AUM) have grown more than tenfold, from US$647 billion in 2000 to $4.8 trillion in 2019. This growth is driven to some extent by the strong performance of some primary PE funds. The PE secondaries market has also grown in line with the primary market. The key reasons are that secondaries allow investors to achieve liquidity early, rebalance their portfolios, modify exposures due to regulatory changes ‒ as we saw after the last global financial crisis ‒ and also lock in returns on their private equity investments.
Is venture capital a risky asset class? Most VC funds choose to act in a risky manner by not diversifying, but that does not make the asset class risky. To de-risk venture capital, CIOs simply need to acknowledge that VC math is different from public markets math. The importance of low-probability, excess-return-generating investments means that proper diversification requires a portfolio of at least 500 start-ups.
The gains from private market investing are best understood relative to public benchmarks. But there has been no way to compare the two in currency terms – until now. "Excess Value" method enables investors to measure the performance of their private market portfolios relative to a public benchmark in currency terms.
Globally, climate change has dominated the public space in the past couple of years. This has propped up a strong investor demand. To wit, 84 percent of millennials invest with a focus on environmental, social and governance (ESG) impact as their central goal as compared to less than 50 percent for baby boomers. Given that an estimated US$68 trillion will be passed down from baby boomers over the next 30 years, with up to 80 percent of investment goals being reconsidered in the process, a significant flow of investment towards impact – specifically, climate change – is expected. Similarly, the supply side has also seen growth, although still mainly in ‘pockets’ and with limited regulation around it. There has been an emergence of green bonds, green-project finance and ESG-agnostic investments in public assets. Large PE/VC funds have also come to the forefront.
Has the time come for us to rethink VC in today’s world? Perhaps take a step back in time to observe how Georges Doriot – the founder of both VC and INSEAD – in 1946, set up a machine to fuel and fund innovation and development. A system that aligns incentives with founders and not funders. Doriot’s philosophy was steeped in a sense of integrity that perhaps deserves a comeback. Business, if treated as a force for good, can only create a system that generates returns in an ethical, balanced way.
The term “impact investing” has only been around for about 20 years. However, the concepts of good business practice and social responsibility have been with us for centuries. The Covid-19 pandemic represents one of the greatest challenges yet faced by this new-old sector.
COVID-19 has accelerated many long-brewing developments in the business world, such as the ascent into respectability of working from home. Private equity (PE) has not been immune to this trend. By chilling the deal-making process for the time being, the pandemic has brought greater focus to PE's involvement in active ownership of portfolio companies, and an emphasis on operational improvements and other forms of long-term value creation. For the moment, PE firms have no choice but to concentrate on keeping their investees afloat, no easy task given the churning waters ahead.
Kamal Hassan, Monisha Varadan, Claudia Zeisberger
Bias within the VC industry is preventing funds from being allocated to the best investment opportunities. This Harvard Business Review article provides insights into the systematic imbalance and institutionalized gender bias in the VC pitch process.
The article elaborates a study on the Europe focused FOs dynamics and how they have been subject to the influence of local institutional environments affected by tumultuous economic and political events, from the global financial crisis to ascendant nationalism and conflictual politics within the European Union. There was surprisingly little information available about cross-national comparisons and the co-evolution of contexts and FOs over time, despite the fact that FOs are often central advisors to families and their businesses in many countries. The dynamics across the three dimensions were examined which comprise institutional environments, according to academic research: Regulative (formal rules and laws), Normative (cultural standards that determine the behaviours and goals that are considered desirable), Cognitive (shaped by prevailing symbolic perceptions and attitudes). The importance of family offices differs across these countries. The UK is the leading centre for financial services in Europe, especially the country’s capital London. In Switzerland (not an EU member), private banking and financial services for international investors are well-established. It has the highest number of family offices in Europe. Europe’s largest economy, Germany, is shaped by traditional, medium-sized family-owned businesses and driven by the expectation of the transfer of wealth from one generation to the next. In France, many families sell their business after its founder’s death and invest the money resulting from the sale via a system of holding companies and family offices because French legislation hampers the transfer of wealth and ownership from one generation to the next.
Women-led businesses are nearly twice as prevalent in earlier funding rounds than in later rounds – almost 12 percent at accelerator and incubator stages, dropping to 8 percent at seed stage. By early-stage VC funding, women represent only 4 percent of investments. Do women find it harder to ask for money or is unconscious bias seeping in? Once women entrepreneurs have mustered the courage to put themselves through a ‘shark tank’-like experience in front of the VC, the numbers are not always encouraging. Women who pitch their venture successfully get less than half the average investment that men receive and the valuations for women-led businesses are far lower than that of men-led ones. To build their businesses with smart capital, women have to work much harder than men.
Last summer, Y Combinator (YC), the original start-up accelerator that has invested in more than 2,000 fledgling firms with a combined value of US$150 billion, sent acceptance emails to 11,000 of 15,000 applicants to its Startup School instead of the estimated 4,000 originally intended. Rather than jettisoning the surplus applicants, the company that nurtured the likes of Airbnb, Dropbox, Reddit and Quora decided to keep everyone on board. This year, YC will likewise accept all applicants to Startup School, a 10-week, free-of-charge massive open online course (MOOC), supplemented with virtual office hours and access to 15,000 founders worldwide. An unannounced number of those who complete the programme will be given a US$15,000 grant. As YC President Geoff Ralston, an INSEAD alumnus, told in a recent interview, “It's part of our goal to maximise the amount of entrepreneurship and innovation there is in the world.”
Sam Garg, Nathan Furr