Falling dominoes that are stopped by a hand

6 Best Practices To Prevent Your CVC From Crashing

Deep dive with CVC executives on their performance

In 1964, Exxon — today known as ExxonMobil — created its Corporate Venture Capital (CVC) arm: Exxon Enterprises. This subsidy’s purpose was to take minority stakes in different startups to increase innovation within Exxon and explore new domains. This initiative became the biggest CVC fund in the 70s’ by investing in more than 37 firms (internally & externally), in diverse sectors. Twenty years later, Exxon shut down the program with more than 2B USD accumulated losses on computing investments alone. This painful experience went through the ages for Exxon which never tried corporate venture capital again, instead refocusing its business on being a narrow technology oil company.

Corporate venture capital is not new. In fact, we can track CVC activity to the 60’s. At that time, large American corporates were pushed to diversify their activity through strict anti-trust enforcement: CVC seemed to be the solution to their problem. A quarter of Fortune 500 firms like Exxon, General Motors, Boeing, or 3M engaged in large CVC investments, hoping to gain strategic insight and increase their footprint in diverse markets. Exxon was a perfect illustrative case for CVC investment: founding Exxon Enterprises to invest in “new technologies and new business opportunities that could have some significance in the 1980s and beyond” as underlined by Exxon Enterprises’ president (NY Times, Dushnitsky, 2012). In the 1970’s, Exxon Enterprises took minority stakes in more than 18 external firms in various fields such as high-speed printers, surgery equipment, solar equipment or text editing machines. Why bother investing in such small companies? Well, “we’re always looking for long‐term, high growth areas. We are not concerned about the present. We’re trying to create new business that the corporation can look at in the future” answered Mr. McBrayer, president of Exxon Enterprises.

For Exxon, its CVC demonstrated an investment in the future of the company, allowing the firm to transition from a one-product giant to a diversified, attractive company with disruptive assets.

This configuration perfectly exemplifies the concept of corporate venture capital: a minority stake investment taken in a small company to unlock new technologies and business opportunities able to disrupt the sector in the future. Since then, multiple investment waves have occurred, but the model has remained attractive and has proliferated in recent years. The number of CVC units sky-rocketed from 200 in 2004, to more than 1500 in 2015, with total capital invested reaching 70b USD in 2020 (Figure 1).

Figure 1 — Global CVC Investment, 2000–2020 (source: CB Insight, Fusion Partners’ Analysis)

A large majority of these CVC investments are supported by a CVC vehicle, securing relevant investments for the corporate mother, channeling collaboration with the invested ventures and ensuring knowledge transfer across the company. This knowledge flow is made possible through the collaboration of the startup with the corporate mother. This collaboration can take many forms depending on the nature of the corporate mother and its objectives. For example, the corporate mother can bring credibility to the startup, generate leads, increase network, act as an R&D facility, or even as a supply chain partner. By collaborating with startups, corporate mothers will help business unit managers get a disruptive view on their field and increase innovation.

So, what does a CVC unit look like? Well, depending on the needs and constraints of the corporate mother, different forms of CVC can be considered. Each form has its own specificities, but generally, corporate venture capital investments are known to bring strategic benefits through an increase in terms of innovation rate, knowledge, network, go-to-market speed or access to new business models and new technologies. Moreover, clear metrics are observable on the financial side, including increased return on equity and revenue growth (Zahra & Hayton, 2006).

But does CVC really work?

It depends. Let us come back to Exxon Enterprises. After investing more than 40B USD in different ventures, Exxon shut down the program with 2B USD accumulated losses in its computing investments only.

Did Exxon do everything wrong when setting up his CVC vehicle? What are the main criteria influencing the success or the failure of a CVC? Can we extract best practices enabling to create an optimal CVC fund?

To answer this, we conducted a series of interviews to analyze the main differences between CVCs in terms of fund structure, objectives, process, and outcomes and link this to success rates. This enables us to assess pitfalls in the creation and the management of a CVC vehicle and extract best practices and key success factors.

A large scientific literature review completes, and nuances trends highlighted within the interviews. This study focuses on European companies having created a CVC vehicle between 2013 and 2017 to keep a similar IP regime, mindset and maturity level. Supported by this data, we identified and framed six steps that ensure the creation and the management of a successful CVC.

Step 1: Don’t explain your vision, align on it

Ask people to draw a toaster, everybody know what it is, but everyone will draw a different thing”. That’s what an interviewee explained to us, highlighting problems and challenges that occurred through the creation and the management of the CVC fund. Indeed, CVC investments are hard to conceptualize for many executives and can drag your decision-making into endless arguments. Since CVC doesn’t only affect executives of the company but requires dedication from different business unit managers to ensure strategic returns, the sense of the vehicle must be understood by everyone. A non-shared vision can endanger your CVC returns right from the beginning. Indeed, some key executives and business unit managers “don’t understand the value behind minority investment” while others “are not willing to collaborate with startups of the vehicle”.

Novartis set out a CVC to complete its investment activities (Business development & licencing (BD&L)). While BD&L invest in large multi-millions initiatives reinforcing its presence on different market, Novartis Venture fund invests in disruptive high risk ventures that shape future Novartis’ business units.

Corporate mothers can maintain a competitive advantage, creativity, and flexibility by nurturing an innovation culture and innovation capabilities. They do so by engaging in different initiatives such as mergers & acquisitions, strategic alliances or venturing activities (Keil, 2002, Sharma, 1999). For many, cumulating these activities may seem like a waste of resources
and a whim.

In this sense, serious governance problems can occur if the strategy in terms of CVC scope, functions, and purpose, is not shared. A lack of alignment between the different stakeholders involved, could greatly endanger the CVC fund’s performance and investment decisions: “It was a mess, we were stuck between a venture building vision and a minority investment one”, “we had continuous arguments to justify why we don’t take control of the startup”. At the opposite, one interviewee having obtained the buy-in of all executives’ reports “an environment of trust, where everything is done to make the process smoother and faster”.

The rationale behind minority investments and potential benefits of this strategy, needs to be shared among all involved executives and business unit managers.

Aligning with executives, board members and business unit managers about the rationale of CVC investments will increase synergies and optimize the impact of your CVC vehicle.

Step 2: Adapt the structure of your CVC to concretize your objectives

A clear vision is the starting point of a successful CVC, but your vision needs to go beyond the strategic rationale and clarify the purpose(s) of your CVC vehicle. In our sample, 14% of interviewees report having CVC funds for strategic purposes only, 42% report financial purposes only and 44% report having both (Figure 2). To support these structures, 71% chose a wholly owned subsidiary, the rest of our CVCs relying on CVC LPs (16%) and dedicated funds (15%) (Figure 3.).

Figure 2 — CVC Purpose of ou sample / Figure 3 — Vehicle types used by our sample

Figure 4 — Score of knowledge transfer from startup to business, per vehicle type

These choices on the CVC fund objectives and the structure supporting investments are crucial for the performance, processes, and scope of the fund. Indeed, our interviewees were asked to grade the level of knowledge transferred from the startups to business units and the level of collaboration between the CVC portfolio and business units. We observe that the grade of CVC vehicles with strategic purposes is significantly higher (Figure 4) compared to financially driven CVC where synergies with the corporate mother are diminished.

In addition to the stated objective of the fund, choosing the right structure to support your investments is key. Several structures exist to support CVC investments, each one with its own specificities, advantages, and disadvantages (Table 1). Having a structure in line with the CVC purpose is a key factor for the success of your CVC. Our sample well describes the typical formats where financially driven CVC opt for LP or dedicated fund structures and strategic CVC use wholly owned subsidiary vehicles.

Table 1 — Characterictics of CVC vehicle type

However, a lot of companies choose their structure by mimesis or solely considering their resources. As a result, strategic CVCs may opt for LP vehicles, resulting in poor results: 50% of CVC LPs in the UK terminate with unsatisfactory performance (McNally) and the average length of a CVC LP is 2.5 years versus 7.5 years for a direct investment vehicle (Gompers & Lerner). A misalignment between CVC purpose and structure can lead to missed expectations and bad performance. In our study, one company illustrated this phenomenon perfectly. The corporate executive (CTO) stated a strategic imperative “knowledge brought to business units is a key success factor [of its CVC]”, whereas the VC managing the CVC fund (dedicated fund structure) had a purely pecuniary goal expressing “the total dedication to financial return […] without considering strategic objectives

Let us come back to Exxon Enterprises for a moment. Exxon had a clear purpose in mind, shared by executives of the company: to go from a “one-product, narrow-oil technology company to an exciting company that is expanding into different sectors”. However, across the years, Exxon Enterprises evolved from an accelerator for Exxon’s laboratories to a corporate venture capital structure focused on advanced materials, to a fund specialized in medical devices, to finally change course again and focus on computing systems for office use. These back and forths between multiple innovation structures with different processes, objectives and results, made Exxon Enterprises invest in all sorts of ventures without real coherence and synergy for the mother company.

Choosing your fund scope and structure must result from a clear alignment within your company in terms of investment rationale, objectives, and expectations.

Step 3. Define your CVC process to optimize deals and knowledge flow

As any innovation structure, your CVC will have clear processes leading to minority investment deals and their management. In general, CVC processes are very similar to the one of a traditional VC and depending on your structure, your staff will intervene on some specific tasks in the process flow (Figure 5). However, some key aspects need to be considered when structuring your CVC processes. Unclear or inefficient processes can lead to low quality investments and decrease CVC performance.

Figure 5 — Usual tasks performed by CVC vehicles

Indeed, almost 60% of our interviewees report high cycle time (+3 months) between deal sourcing and investment decision (See Figure 6). This difference is particularly visible across different structures, as CVC LPs and dedicated funds require less reporting to the corporate mother, and typically take less than 2 months to perform the investment. This element can be particularly challenging for some CVCs as “the market is more competitive than ever; funds are getting bigger and the time to get deal is short and shorter”. This element is even reported as the most challenging as “we [as a CVC] need to prove we can play every day”, some “golden nuggets” can even be missed “due to our slowness or our need to educate investment committee”.

Figure 6 — Length time between deal sourcing and invetment decision in our sample, per vehicle type

If we exclude traditional VC tasks, two steps in the CVC investment process are quoted as highly time-consuming: sponsorship request and investment committee.

Through an optimized knowledge flow, the CVC of Johnson & Johnson managed to transform its initial investment in a Scandinavian polymer startup into Acuvue, , J&J’s current disposable contact lens business

To ensure synergies with the different business units of the company, CVC executives must seek the sponsorship of a business unit manager stating the relevance of the startup for the company. This process was performed by 66% of our sample and is reported as “one of the main chunks of our [the CVC fund] time” or as “a main brake to do more”. CVCs who excluded sponsorship request from their processes report it as “something fabulous” since it “avoids making everything slow”. Despite its slowness, the importance of this step is underlined by most strategic CVC since “it allows us to not invest anywhere, it frames us”. Most of our interviewees consider this as a “necessary step ensuring our investment relevance, even if it slows us down”. Therefore, sponsorship request may frame your investment thesis and ensure relevant investments for your company. However, depending on your staff profile and your expectations with your vehicle, skipping this step may be pertinent.

The other time-consuming step remains the investment committee, where the CVC manager proposes the deal to a dedicated committee. The committee generally includes at least one executive from the mother company and sometimes includes board members or business unit managers. This step is performed by 100% of our sampled companies (except for the CVC as LP who is independent by nature). However, in more than 80% of the cases, investment committees approved 100% of the proposed deals, questioning the pertinence of this step that “can really slow down processes, even if everyone makes the effort”.

Questioning the relevance of each task of your CVC in light of your objectives, will avoid misalignments and under performance of your vehicle.

Step 4. Deliver on the promise you make, more than on the money

We want our startups to succeed in commercial terms”. Although this is the starting point of many CVC/startup relationships, empirical practices reveal CVC vehicles apply very different approaches resulting in variable outcomes. How you choose to treat startups and how you organize collaboration with them, will be the most central element of your CVC.

Salesforce Ventures and GSK’s CVC have strong relationship with startups and organize key collaborations with 50% of their portfolio

The performance of your CVC fund will be driven by the level of implication with the startup and the value brought by the partnership. While over-implication and micro-management can prevent startup growth and corporate mother returns, low implication goes against the purpose of the CVC and annihilates strategic returns (Lee & Al, 2015). CVC funds on the market are trying to find a balance, acting alternatively as a sales channel (Salesforce Ventures), a R&D facility (Safran Ventures) or even as a supply chain (SR One, CVC of GSK). However, benefits brought by corporates can sometimes be blurry and lead to negative effects on startups: “we didn’t have the right balance between assets brought to startups”, “our management malpractices prevented our startup from becoming number one”. In this frame, startups will not bring any knowledge to the corporate mother, ending up in a breakdown of all relationships with its corporate investors.

In terms of actual presence, 100% of our sample sit at the board of invested startups, like most programs on the market (Dushnitsky, 2009). However, some corporate investors report “no restrictions” on the startup in terms of milestones, customers, or revenues while others prefer to “forbid startups to work with competitors” for a defined period or “try to control it”. This implies creating CVC fund structures that will enable rather than hinder win-win relationships. We observe in our sample that corporates expressing fewer doubts about what they bring to the startup (excluding capital) report higher collaboration and strategic returns. To organize these collaborations, the most strategic-oriented funds have a clear process enabling knowledge flow, while the more financially-driven structures consider this as “not a priority” and “organize presentation meetings, when possible, often one per month”.

At the end, it all comes down to trust and promises. The link between a CVC and its startups is fundamentally different from a VC/venture relationship as it goes beyond capital only. A clear mutual understanding between stakeholders supported by defined processes must be set to enhance a win-win investment.

Failing on this aspect can endanger your CVC, and Exxon Enterprises is once again the perfect example. After promising a minor investment associated with clear benefits (network, market insights, new market entry, infrastructure…) and a preservation of their autonomy to startups, Exxon Enterprises tried to merge and consolidate its ventures, breaking the agreement and the trust between stakeholders. The relationships blew up and entrepreneurs fled the fund, leading to tens of millions of dollars in losses.

Defining processes to crystallize a trust relationship between your company and your ventures will enable higher strategic returns and promote innovation within your company.

Step 5. Don’t simply monitor your performance, monitor it right

Every project in a company includes some kind of reporting and performance indicators (commonly called KPIs), and CVC vehicles are no exception. Every CVC vehicle in our sample mentioned a reporting of some kind. All our sampled CVC funds only use financial metrics to measure performance, except one that uses satisfaction rates from different stakeholders. Large discrepancies are observable between the objectives of the CVC (which are mainly strategic) and metrics measured. This generates situation where executives have “no view” on the level of collaboration, technology or culture change induced by the CVC vehicle. Most of the initial objectives are deemed achieved through “feelings mainly” without “any metrics being able to objectively corroborate with this”. Managerial practices seem to echo scientific literature criticizing the lack of standardized measurement method for corporate venture capital vehicles (Dushnitsky, 2009).

Developing personalized metrics to measure each objective of the CVC is necessary to understand improvement points and gain insights on CVC performance.

Step 6. Recruit and empower the right people to manage your fund

Venture capital is a dynamic and people-driven business.” states Steve Jurvetson, chairman of SpaceX and founder of a VC firm. This is even more true for corporate venture capital, where people need to be able to perform traditional VC activities, define and apply the investment thesis in accordance with corporate mother strategy, and communicate with startups and across the company to ensure knowledge flow.

While this statement may seem obvious, many mistakes are made by corporate mothers when setting up their fund. For example, appointing a CVC manager with deep experience in the company can be detrimental to the CVC. This manager will struggle to acquire the depth of knowledge necessary to understand the value of CVC practices within the firm (Gaba & Doko, 2016). However, if this CVC manager has had previous experience as a business unit manager, knowledge transfer between the CVC fund and corporate mother is more likely to happen (Henderson & Leleux, 2002).

These issues are shared by our sample where “Our staff is coming from the corporate mother […] but heterogeneity is bringing value”, “consanguinity isn’t always good”. One CVC executive even reports the lack of innovative ideas that a uniform staff can produce, bringing zero-value to investment quality.

In parallel of who to recruit to manage your CVC, talent retention and empowerment remains a “huge challenge” for CVC vehicles. Talents composing your CVC vehicle can feel “frustrated by micromanagement” from the corporate mother or “not skilled enough to ensure the right deal flow”. 43% of our sample report felt unskilled or suffered from a climate of mistrust with the corporate mother.

How to deal with it? Well, staff empowerment seems to be the solution. Staff empowerment can go through all sort of practices which are not specific to CVCs, and therefore out of scope for this paper. However, incentives are found particularly significative in CVC staff empowerment. Figure 8. describes the remuneration method of CVC managers in our sample, confirming that venture managers are paid no differently than corporate personnel (Block & Ornanti, 1987; Sykes, 1992). “This can be extremely discouraging” underlines one interviewee, who deplores working in a VC-like environment without the advantages.

Figure 7 — Type of remuneration used by our sample, per vehicle type

This is in line with literature which highlights that fixed incentives lead to conservative investment practices (Dushnitsky & Shapiro, 2010) and undermines the performance of the CVC unit (Benson & Ziedonis, 2010, Hill & al, 2009, Dushnitsky & Shaver, 2009). “I fully believe in this [VC-like incentives], if you have a normal salary, you try do your best, but you’re not optimal […] this is the best way people take care of your money” concludes an interviewee.

Talents define your CVC performance. Empowering your CVC staff through autonomy, trust and performance-based incentive will increase investment value and relevance for your company.


These six steps serve not only as a way to de-risk a new corporate venture capital initiatives, but also provide clear insights on how to manage a CVC vehicle efficiently, and how to avoid major, yet classic, pitfalls. Figure 8 reveals the most quoted challenges during interviews and different questions leading to best practices concerning CVC vehicle management. Insights from scientific literature and interviews with multiple CVC executives highlight the importance of vision in CVC initiatives.

Figure 8 — Pitfalls and best practices for your CVC

Defining the structure and the objective of your CVC and your vision for the vehicle, will also shape the level of autonomy of the different processes and define who will be in charge. Aligning clearly with your stakeholders on vision, expectations and relevance of this new unit, will allow you to dodge many bullets and make your CVC vehicle pivotal in your innovation strategy.