Venture capital is the money business entities, and private individuals invest in start-ups. When venture capitalists invest their money, they receive an equity stake in the start-up up to a fixed percentage. Such an investment is often risky because if the start-up fails, the venture capitalists have little to no protection for their money. However, if the start-up turns into a success, they receive impressive returns.
Venture capital is a significant funding source for young start-ups since they have limited access to debt instruments and bank loans due to no operating history. Therefore, venture capital plays a crucial role in fostering innovation and keeping the economy alive. However, since there are many risks involved, you may avail of VC services from research and analytics. With data-based solutions, they can help you understand the economic changes and consumer behavior, based on which you can find quality targets to invest capital.
Before investing your money into a start-up, it’s crucial to understand the differences between corporate and institutional VC services. Let’s take a look.
What are Corporate VC Services?
Corporate VC services deal with an independent entity or a dedicated investment team of a company’s balance sheet. The goal of both corporate VC and institutional VC is the same: investing in a high-growth company that drives value. Since much of the corporate VC growth is attributed to a slow financial recovery, many companies turn to corporate VC R&D to mitigate risks. Since a large part of the investment is off the balance sheet, the company gets more R&D scale than its profit and loss. It provides you access to talent and markets not available otherwise.
What are Institutional VC Services?
Institutional VC services are associated with companies managing investment funds for high-growth potential firms. Such VC is sourced from the fund’s investors, general partners, and limited partners. General partners are the fund partners who run the fund and decide about making investments. While a majority of all venture capital is arranged by institutional venture capital, the bulk is raised by the remaining small percentage of firms. You may understand the industry dynamics with institutional VC services and frame the funding accordingly.
Points of Differences
Corporate and institutional venture capital services differ in the following aspects:
Stage of Investment:
Corporate venture capital services are aimed at investments in firms in their early to middle stage. At this point, deals are more accessible, and brand association is valuable for them. Therefore, such a VC investment is beneficial for both parties. However, as far as institutional VC is concerned, the basic idea is to invest in late-stage companies. It aims at building a solid team for economic success.
For the investment stage, institutional VC services ensure consistent sources of finance throughout an entity’s lifecycle. On the other hand, corporate services are more strategic to support growth for companies in the early to mid-stages.
Objective:
Whilecorporate services have strategic goals, institutional services aim at financial returns. Corporate VC aims to invest short-term in a company with a tighter relationship and closer alignment with the investor. However, for the long-term, they aim at investing strategically. As far as institutional VC is concerned, investors seek to invest money in businesses according to average financial returns.
Both corporate and institutional venture capital complement each other. While corporate services provide in-depth industry knowledge to the start-ups and give them access to potential customers, institutional services aim at building a company and driving monetary results.
Level of Control:
Corporate VC does not seek much control. These investors work as observers rather than having a crucial role in the vote. This gives them less control over the firm while remaining active partners. On the other hand, institutional VC has more extensive control over the company’s portfolio investments.
With a broad seat in the company’s leadership team, institutional VC services give more power. As a result, investors have a crucial role in the company’s growth and return on investment.
Follow-On Investment:
Corporate VC is subject to the company’s balance sheet and leadership. When leadership or economic condition changes, the objectives may also change. Institutional VCs are often 10-year commitments with the initial investment in the first three years. Once the portfolio is established, the funds make follow-on investments over the rest of the lifecycle.
While there are differences between corporate and institutional VC services, you need to find research and analytics partners that can offer both types tailored to your needs. Supported by state-of-the-art technology platforms, they provide responsive and agile service to help you succeed in the rapidly changing business environments.
Detailed analytics in performance tracking, exposure reporting, and attribution analysis help you easily monitor and access investment performance. Based on the results, investment firms can select companies with high-growth potential. Therefore, get in touch with a knowledgeable partner who can give you data-driven results to help you make better investment decisions.
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