Despite plenty of startups to invest in, gaining parent company approval isn't always easy, fund managers say.
The biggest challenge for corporate venture capitalists isn’t finding startups to invest in -- it’s gaining parent company support in time to close a deal, according to a report released this week by Ernst and Young.
A survey conducted earlier this year by the London-based accounting firm found that persuading a parent company to invest in a startup is the biggest hurdle faced by corporate VC units. Among other efforts, this involves identifying the impact the deal will have the parent company's bottom line, the survey found.
Operating within large institutions, corporate VCs can’t look for financial gain alone in choosing a promising startup to fund, the survey found. Eighty percent of the 37 corporate VC unit mangers surveyed said they make investments based on a mix of financial return and corporate strategic objectives. Top strategic goals include product development within the parent company, identifying new market opportunities, and mapping innovation and new technologies.
Gil Forer, Enrst & Young's director of cleantech, IPO and venture capital initiatives, said despite these challenges corporate venture capital was becoming a vital component in the innovation strategies of many leading corporations.
Forer said the initiatives must "blend financial success with broader strategic goals that contribute to their parent company's success."
Last year, corporate VC units reported making between one and five investments, and many are expecting higher levels in 2008 with the United States as a key market.
One growing focus of corporate VC funding are cleantech startups, 35 percent of respondents saying they expect to invest in cleantech in the coming year and 44 percent within the next five years, the survey found.