Corporate Venture Capital: When More Than The Price Is Right
Fostering innovation and entrepreneurialism is a top priority across the MENA region, and the UAE has in many ways been at the forefront of this quest. This appears to be bearing fruit, with the region now reportedly home to the highest proportion of millennial entrepreneurs in the world, an increasing number of global success stories, and promising start-ups from farther afield looking to the region as an attractive source of venture capital.
It is no surprise then that some of the Gulf’s biggest companies, including family-owned businesses and government-owned investment firms, are actively seeking to tap this burgeoning ecosystem with corporate venture capital, or CVC, investing. Many global corporations, such as Royal Dutch Shell, Novartis and GE, operate active CVC arms for the same reasons. In fact, 75 of the Fortune 100 companies are active players in the corporate venturing space today.
Going back to basics, venture capital investing generally refers to an investor providing funding to support the growth of a start-up or early stage venture in exchange for an equity stake in the business. Corporate venture capital is a similar concept, but the investor is a well-established business, investing in smaller ventures with a view to generating a return, while also gaining a strategic advantage in sectors that it has an interest in.
This strategic component is probably the biggest difference between these two investment models. While a traditional venture capital fund will often have a number of limited partners providing capital to be invested, CVC divisions are usually supported exclusively by their parent company. That’s why CVC investors generally target start-ups that have natural synergies with the industries that their parent company operates in. It’s also why, when they do make an investment, they tend to play a more active role in the oversight of their portfolio companies than a regular venture investor might.
That’s certainly how we have approached this space at Crescent Enterprises, since we launched CE-Ventures in 2017. We have consistently looked to partner and invest in innovative ventures that can help us embed new technology into our existing businesses and industry sectors, such as ports and logistics, energy, and healthcare, while also scanning the horizon for tech-enabled start-ups with the potential to disrupt traditional business models. Today, CE-Ventures is on track to invest US$150 million in high-impact start-ups globally by 2020.
What’s in it for us is clear. The companies we invest in don’t just gain financial capital but also the support and credibility that comes with the backing of an established strategic investor. They can benefit from the knowledge and expertise of our people, and from exposure to our global network of partners and suppliers. Through our operating platform, CE-Operates, we regularly provide tactical and strategic guidance to our venture portfolio businesses. We can also leverage the knowledge and experience of our private equity investment platform, CE-Invests, to help founders put in place best-practice corporate governance frameworks and deliberately structure their businesses for sustainable growth.
Perhaps most importantly, by teaming up with an investor that is frequently looking to deploy new tech-based solutions in the field, start-ups get the opportunity to test their ideas in real-world, real-time environments. This generates invaluable insights and experience for start-ups, helping them to identify additional market opportunities early on in their growth journeys.
There is no one-size-fits-all approach to developing a successful start-up or investing in one. When done right, CVC investments enable promising start-ups to scale up more quickly with the guidance and support of an established company that is eager to put new technology and solutions into practice. For a UAE-based, diversified business such as Crescent Enterprises, we view CVC investing as a mutually beneficial way to bring promising talent, new ideas and viable businesses into our ecosystem, with a view to generating financial returns alongside organisational agility and resilience.
As published on Hadara Magazine in June 2019.