What Is A CVC Fund?
A CVC (Corporate Venture Capital) fund refers to an investment vehicle formed by a corporation to invest in startups or other funds. In recent years, there has been a notable surge in the number of corporates establishing specialised investment vehicles, which has resulted in increased activity within the Indian startup ecosystem.
CVC participation in the startup ecosystem is increasing at a rate of 7% per year. According to Crunchbase, there are currently more than 150 active CVCs in India.
How Does A CVC Fund Work?
CVC funds work in a similar fashion around the world. A corporation or a group of corporations set up a VC arm to invest in startups and provide them with capital in exchange for a minority stake in the company.
Besides funding, CVCs offer marketing and development expertise, mentorship and network support to startups.
For example, when a conglomerate invests in a D2C brand as part of the CVC strategy, it can provide two significant benefits to the startup. Firstly, the brand will receive the necessary funds to fuel its growth and expansion plans. In addition, the conglomerate can bring its expertise in various aspects such as manufacturing, distribution, and marketing, which can be a huge advantage for the D2C brand.
How Different Is A CVC Fund From A Traditional Venture Capital Fund?
The difference between a VC fund and a CVC fund lies in the intent behind investment. A VC fund typically invests with the goal of gaining lucrative returns on investment. On the other hand, CVCs invest to gain a competitive edge in the market by accessing innovative solutions, new ideas and customers.
VC funds push for an exit to generate favourable returns on investment for the limited partners. However, a CVC focusses on strategic partnerships between the corporation and the startups.
Finally, the fund cycle for VCs range from five to 10 years. In case of CVCs, the fund cycle is often not terminated. These are called evergreen funds.
What Kind Of Companies Do CVC Funds Invest In?
In India, CVCs can invest in startups across different sectors and stages of growth — from early stage startups to late stage companies.
Here are a few examples:
- Artha India Ventures, an early stage investment arm of Artha Group of Companies, has been investing in startups since 2012. In 2022, Artha Group closed 30 investment deals, including Daalchini, Fantasy Trading League and HobSpace.
- In 2022, growth stage edtech startup Adda247 raised $35 Mn in a round led by WestBridge Capital. The funding round also saw Google joining as a new investor.
- In January 2022, late stage hyperlocal delivery startup Dunzo raised $240 Mn in a fresh round of investment led by Reliance Retail Ventures Limited.
What Are The Benefits Of CVC Funds For Startups?
Startups can leverage the extensive network and expertise of large companies to grow their business and explore new markets.
CVCs usually have significant sales and distribution networks that can help startups expand globally. With their understanding of the challenges associated with large-scale sales and distribution, CVCs can help startups fuel their growth.
CVC-backed startups stand a greater chance of being acquired by their funding company.
For example: In 2018, Walmart acquired Indian ecommerce marketplace Flipkart for $16 Bn. According to the deals of the agreement, Walmart became the largest shareholder in the Flipkart Group.
Who Are Some Of The Biggest Players In The CVC Space?
Some of the notable CVCs in Indian startup ecosystem are:
What Are The Typical Investment Sizes For CVC Funds?
The typical investment size for CVC funds in India can vary depending on a specific fund, its focus, and investment criteria. However, in general, CVC investments in India tend to fall between $2 Mn and $20 Mn.
How Do CVC Funds Evaluate Potential Startup Investments?
CVC funds identify potential investment opportunities by evaluating synergies, market opportunity and strategic fit with a startup.
Upon identification, a CVC fund will perform due diligence to assess the startup’s financial position, technology capabilities and other key factors.
What Role Do CVC Funds Play In The Startup Ecosystem?
CVCs are typically multinational corporations with a vast global reach and can provide startups with a range of benefits such as strategic guidance, market validation, access to resources and corporate innovation. These funds play a crucial role in driving the growth of the startup ecosystem, taking them from zero to 100.
However, sometimes, CVCs may acquire startups that they perceive as potential competitors, which can restrict the leadership’s ability to realise their vision of transforming the business into a billion-dollar enterprise.
How Can Startups Attract The Attention Of CVC Funds?
To attract the attention of CVC funds, startups can attend industry events, leverage networking opportunities and build a strong online presence. Having a strong team, technology, and a proven business model can make the startup an attractive investment choice for CVC funds.
It is also important to note that connecting with larger industry players not only provides access to investment opportunities but also helps in expanding a startup’s network.