CVC’s Strategic and Financial Returns

In the investment activities of Corporate Venture Capital (CVC), balancing strategic value with financial returns is a critical challenge. The latest efforts regarding investment returns for Japanese CVCs have been revealed through the JAPAN CVC SURVEY 2023.

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About 30% of CVCs are achieving strategic returns as planned or above expectations, while 40% of CVCs are seeing strategic returns below plan. In particular, for strategic CVCs, 50% of companies reported returns below expectations, indicating that CVCs with strategic objectives are struggling to achieve the anticipated returns. On the other hand, regarding financial returns, fewer than 20% of companies reported returns below plan, with 45% achieving returns as planned or better.

■ Trends by Organization Type

【1. Strategic CVC】
・Emphasis on strategic value
・Main objective is pursuing business synergies
・Financial returns are secondary
・Focus on collaboration with business divisions

【2. Financial CVC】
・Emphasis on financial returns
・High independence in investment decisions
・VC-like investment style
・Focus on portfolio management

【3. Hybrid CVC】
・Pursuit of balance between strategy and financial returns
・Flexible decision-making based on project characteristics
・Aiming for comprehensive value creation
・Pursuit of diverse investment opportunities

■ Evaluation Elements of Strategic Returns

1. Business Synergies
・Synergistic effects with existing businesses
・Contribution to new business development
・Opportunities for technology acquisition
・Acceleration of market entry

2. Innovation Creation
・Incorporation of new technologies
・Innovation in business models
・Transformation of organizational culture
・Impact on human resource development

3. Ecosystem Building
・Building relationships with startups
・Understanding industry trends
・Discovery of new business opportunities
・Formation of partnerships

■ Summary

Currently, there is an increase in Hybrid CVCs, which aim for more comprehensive value creation by balancing strategic value and financial returns. This trend suggests that CVC investment activities are maturing, and more sophisticated investment approaches are being sought.

In the future, the quantification of strategic value and the proper balance with financial returns are expected to become even more important. CVCs will need to develop optimal frameworks for investment returns tailored to their own characteristics and objectives.