Corporate vs. Institutional Venture: A Primer

I always wondered what it was like on the other side.

And no, I’m not alluding to the much-talked-about founder side vs. investor side here — I’m talking corporate vs. institutional venture.

Recently, I’ve made the jump to institutional venture, and several people have asked about the transition — hence, this post.

But first, some background:

A couple years back, I worked in Innovation Strategy at Capital One in NYC. In that role, I had the privilege of diving into the corporate VC world alongside the company’s venture arm, through our collaboration in assessing investments for the company’s Commercial Banking division.

This was my first foray into venture, period — so corporate venture was all I knew when it came to VC.

It was there that I learned what cap tables were, what all the funny alphabetized series names meant, and how venture as an asset class works.

It was there that I fell in love with getting out of our four walls and talking to founders and hearing their stories and the big, meaty problems they were trying to solve — and where I first thought “okay, how do I do more of this?!”.

Now that I’m on the institutional VC side, I wanted to demystify some nuances between the two worlds.

So… what’s the difference? 🤔

If you don’t know where to begin on corporate vs. institutional VC, you’re definitely not alone.

Let’s start with an over-simplified cheat sheet:

The remainder of this post is a double click into each of the sections listed above:

1. What it is 📈
2. Primary Objective ✅
3. Stage 🛠
4. Where they get the funds 💵

1. What it is 📈

I’m trusting the above descriptions are pretty self-explanatory. Put simply, institutionals purely do VC for a living — whereas, for corporates, VC is a subset of a much wider range of activities.

While institutional venture has been commonplace in the startup community for decades, Corporate VC has really seen its rise and formalization in the past 5–10 years.

Basically, Institutional VC is the classic original, and CVC is an increasingly prominent variant on venture as corporates decide they want in on the game.

There are some grey area funds that walk the line between institutional and CVC, where they are corporate-branded but decision-making is independent of the corporate parent — specifically, I’d call out Bloomberg Beta and GV as examples — but for simplicity here, I’ll stick to the two separate buckets.

2. Primary Objective ✅

Institutional VCs tend to make a bunch of bets expecting a small percentage to pan out in a big way. The majority of bets will be written-off or provide little value to the firm — see overview of VC power law distributions here.

Corporate VCs, on the other hand, make very select investments in companies that, regardless of the outcome, they typically expect to learn or gain something from.

Of course, financial objectives are hugely important to corporate VCs as well and they’re definitely shooting for venture-level returns, but

(a) They tend to only invest in companies that are a clear strategic fit to the corporate parent, and

(b) Their livelihood does not necessarily depend on making a specific return. A corporate parent might back a low-returning fund of theirs in perpetuity for strategic reasons, whereas Limited Partners on the institutional side are typically seeking a specific financial return, and will likely pull out of future funds if they do not perform.

3. Stage 🛠

Due to the strategic nature of Corporate VC, it makes sense that they tend to focus on slightly later-stage, more proven companies.

Since they aren’t purely playing the financial return game — and, helping scale companies from concept to viable business isn’t typically a core competency of large corporates — they’re generally less inclined than traditional VCs to be investing in “early science projects”. 🧪

As a result, a seed or pre-seed stage startup that doesn’t yet have product-market fit might have a hard time raising from corporates, since they tend to want to invest in something tangible, in-market, with a commercial product and paying customers.

The main exception would be if there’s a clear, near-term acquisitive play — which, at that stage, would most likely be what’s referred to as “acqui-hire”: acquiring a startup primarily for its talent. 👨‍👩‍👧‍👦

It’s worth noting that “acqui-hire” investment discussions teeter on the line of CVC vs. Corporate Development, two internal teams between which there’s sometimes not an entirely clear separation.

Importantly — and unsurprisingly — for entrepreneurs to know, CVC is very commonly a pipeline for Corp Dev-type M&A discussions. More often than not, when you’re in talks with a strategic, they’re at least entertaining “could this be a potential acquisition down the line for us?” as a thought.

4. Where they get the funds 💵

“Where they get the funds” is typically called “fundraising” — so let’s stick with that term from here.

In institutional venture, fundraising is the lifeblood of the firm. Put bluntly, if you don’t have money to manage, you are not in business.

Institutional VCs raise money from Limited Partners (details here), and LP sourcing and management is a key ongoing priority for such funds. No fund, no business. 🤷‍♀

In Corporate Venture, “fundraising” in an external sense isn’t really a thing: the corporate parent usually self-backs investments on a case-by-case basis with internal capital from the balance sheet.

That means there aren’t typically dedicated “funds” to invest out of (you’ll often hear of an institutional VC talking about their “Fund II” or “Fund V”), nor are there the well-structured fund terms like the typical 10-year lifespan (details here).

That’s not to say that CVCs are exempt from working for their investment capital — quite the opposite: they need to achieve hard-fought business buy-in, in order to obtain that capital.

They aren’t accountable to LPs — they’re just accountable to someone else.

And that “someone else” is “the business”. 👔👩‍💼

In my experience, CVCs’ fundraising equivalent is socialization, socialization, socialization. Even in a very forward-thinking organization, your typical employee (or even executive) may not have a full picture on what’s going on outside of the company’s four walls in the startup world. Thoughtful education is key in order to achieve corporate buy-in for investment. I did a lot of this in my role.

The more the company’s employees are empowered and equipped to dream up the future themselves, the easier it will be to have open and productive discussions about innovation. 🔮

Closing thoughts

I hope this gave you at least some high-level insight on the differences between corporate and institutional VC.

If you‘re an entrepreneur with questions about navigating these two worlds, or if you just want to connect, you can find me on Twitter (@AnnikaSays). 👋