What is Corporate Venture Capital (CVC)?

Definition and Characteristics of CVC

Corporate Venture Capital (hereafter referred to as CVC) refers to the activity where corporations invest in external startup companies, either through direct investments or self-formed funds. The acronym CVC is commonly used, derived from the English term "Corporate Venture Capital."

The primary characteristic of CVC lies in its investment objectives, which differ from those of traditional venture capital (VC). While VC primarily seeks financial returns, CVC focuses on strategic objectives such as:

1. Creating synergy with existing businesses
2. Acquiring technologies beneficial to new business development
3. Participating in the innovation ecosystem
4. Identifying potential M&A candidates

In essence, CVC is not just an investment activity but is positioned as part of a company's growth strategy and a means to enhance competitiveness.

Characteristics of Companies Engaging in CVC

Industry Distribution

CVC is practiced across a wide range of industries. According to FIRST CVC's CVC SURVEY 2022, IT and advertising account for 25%, and finance for 17%, with active engagement also observed in the following industries:

• Finance
• Information and Communication
• Entertainment
• Manufacturing
• Retail
• Construction

Company Size

The size of companies engaging in CVC varies widely:

• Large corporations with annual sales over 1 trillion yen: approximately 30%
• Companies with annual sales below 100 billion yen: approximately 40%

These figures show that CVC is an important strategic tool not only for large corporations but also for mid-sized companies.

Scale and Characteristics of CVC Investments

The scale of CVC funds typically ranges from 2 to 8 billion yen, depending on the size of the parent company. In cases like partnerships with established VCs, fund sizes are specified, while with BS investments, investment size is not specified. As shown in this chart, the number of CVC investments has increased year by year, indicating a growing interest in CVC (with 616 investments reported in JAPAN CVC SURVEY 2023).

CVC Operating Models

CVC is primarily operated in three main models:

1. Balance Sheet Investment (BS Investment):
   • Direct investment in startups by the parent company or subsidiary
   • Allows flexible investment decisions but may lack expertise
2. Establishment of Independent CVC Fund:
   • Employing a professional fund manager
   • Enables more systematic investment activities
3. Joint Management with VC (Two-Person Partnership):
   • Leverages existing VC know-how
   • Provides risk diversification and expertise

Companies select the most suitable operating model based on their strategies and objectives. Detailed explanations of the advantages and disadvantages of these representative investment schemes are available on the page below.

About Representative Investment Schemes

Key Objectives of CVC

The objectives of CVC are diverse and can be broadly categorized into the following five areas:

1. Developing New Markets
   • Entering new markets unrelated to existing business
   • Entering high-growth potential markets (through targeted investments/acquisitions)
2. Strengthening and Expanding Existing Business
   • Developing new business leveraging existing assets
   • Enhancing the value of core businesses (improving services/functions, expanding channels)
   • Activating peripheral industries around core business to foster growth
3. Risk Management and Future Preparedness
   • Investing in technologies that could replace existing business
   • Pursuing sustainability by investing in companies with sustainable technologies or systems
4. Gaining Information and Insights
   • Acquiring the latest trends and networks (understanding cutting-edge trends in startups)
   • Gaining insights into industry trends and new technologies
5. Organizational and Talent Development
   • Cultivating a managerial mindset
   • Acquiring know-how in business partnerships and open innovation
   • Fostering an innovation culture

These objectives are interrelated, and many CVCs pursue multiple goals simultaneously. Companies design and operate CVCs by selecting focal areas from these objectives based on their strategies and market conditions.

Examples of CVC Investment Objectives

To understand the diverse purposes of CVC, here are some representative examples from companies.

1. New Business Leveraging Existing Assets

Mitsubishi Estate:

• Investment Target: Spacemotion Co., Ltd. (51% share acquisition)
• Objective: Deploying new business utilizing real estate assets (self-owned/managed buildings)
• Description: Introducing elevator advertisements already established in China to the Japanese market
• Characteristics: Adding new value to existing real estate assets and diversifying revenue sources

2. Preparing for Business Alternatives and Promoting DX

Japan Post:

• Investment Targets: Multiple (e.g., Mujin)
• Objectives:
  1. Enhancing competitiveness of existing business assets (post offices, financial counters, retail real estate)
  2. Investing in alternative technologies and DX/GX-related technologies
• Description:
  • Investing in technologies such as drones and AI
  • Automating parcel sorting tasks at post offices through collaboration with Mujin
• Characteristics: Reducing costs and improving efficiency in existing business while preparing for future business environment changes

3. Streamlining Operations Through DX

Benesse:

• Investment Target: Galapagos Co., Ltd.
• Objective: Improving efficiency in advertising and content production
• Description: Investing in and collaborating on Galapagos’ content production support tool “Air Track” to streamline company operations
• Characteristics: Introducing digital tools to reduce costs and increase productivity

These examples demonstrate that CVC serves as a critical tool for achieving strategic objectives beyond mere financial investment. Each company leverages CVC to incorporate new technologies and business models tailored to its strengths and challenges, enhancing existing businesses and creating new ones.

Conclusion

In today's rapidly evolving business landscape, CVC has become an essential tool for companies to integrate external innovation and accelerate growth. Its strategic significance extends beyond financial returns, directly contributing to long-term competitive strength. Moving forward, more companies are expected to adopt CVC as a means to drive open innovation.

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