An Overview and Directory of Corporate Venture Capital (CVC) in Healthcare
Large companies are playing an increasingly important role in the venture capital ecosystem. In fact, about a quarter of deals now include corporate venture capital (CVC), an increase from 20% in 2022 and 11% in 2010.
Often referred to as "strategic" investors, CVCs indeed invest with a view towards furthering the long-term objectives of their parent companies. But their motivations are more than just strategy. CVCs seek to achieve significant financial returns, mitigate risks through diversified portfolios, and gain early insights into emerging market trends.
In this article, I’ll share everything I know about CVCs in healthcare, including:
Let’s dive in.
How does corporate VC work?
Corporate venture capital (CVC) is an investment arm set up by a corporate entity to invest directly in private companies. The companies they invest in can be completely independent, or they may be spin-offs from the parent organization.
Investments are typically made from the corporation's balance sheet or from dedicated funds, meaning the capital invested is the corporation's own operating capital. While an institutional VC will have many funders (called Limited Partners, or LPs), a CVC will have a single funder—the parent company.
Also, unlike institutional VCs, CVC partners (the employees who run the fund) typically do not receive carried interest (or "carry"). Carry is the upside—the share of profits that fund managers receive as compensation when investments perform well, usually 20% of fund profits after returning capital to investors. Instead, CVC employees are compensated primarily via salary and bonus structures.
Why do corporations invest in startups?
CVCs are established as a means of sourcing innovation and growth. We all know that scrappy, small teams serve as the lifeblood of innovation. Large companies (which were once scrappy themselves!) know this, too. And by investing in startups, they hope to remain at the forefront of market evolution and innovation. In the process, they gain market intelligence that can subsequently inspire the team and inform the corporation's strategic planning.
In recent years, artificial intelligence has become a major driver of corporate venture activity. Many corporations increasingly view startup investing as a way to gain early access to emerging AI capabilities, talent, and business models that could reshape their industries.
CVCs also serve a financial purpose. They put their parent company’s cash to work with the hopes of generating substantial returns. A good CVC portfolio can yield considerable financial gains, demonstrating the dual role of CVCs as both strategic enablers and potential profit generators. In terms of risk management, the diversified nature of a CVC's portfolio serves as a buffer. Even if one startup underperforms or fails, the success of other companies within the portfolio can offset the losses.
Of course, some CVCs invest as a strategy for business development and strategic partnerships. Through their investments, CVCs gain privileged access to portfolio companies' inner workings, technologies, and market strategies, enabling them to identify potential partners or acquisition targets early on. At the same time, this means they are preventing competitors from accessing these same opportunities.
A database of 75 strategic healthcare investors
Healthcare Corporate Venture Capital
| Name | Category | Focus | Website |
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Should founders take money from corporate VCs?
When it comes to fundraising, you may be wondering if you should pitch any of the corporate VC firms on the list above.
On one hand, CVCs can offer startups more than just a check. They often come with the potential strategic alignment and support from the parent company, which can translate into partnerships, potential customer introductions, and even an acquisition down the line. CVCs can also offer deep industry insights, greater market credibility, and access to resources that might otherwise be unavailable or costly to obtain.
But sometimes, taking money from CVC can hold you back. It could limit future strategic options, particularly if the investment comes with strings attached—like an exclusivity clause that may prevent partnering with or receiving investment from the CVCs competitors. Or, the parent company's competitors might be less willing to do business with your startup. There's also the risk of misaligned expectations: while you may be focusing on growth and market capture, the CVC's parent corporation might be more interested in strategic benefits, such as market intelligence. Lastly, and this could be true for institutional VCs as well, a CVC may also invest in a competitor or even launch a competitive offering.
I think the answer here really is that it depends on the CVC and your specific company.
Some things to consider:
What information rights would they have? Can they be revoked if your startup and the CVC become competitive?
Would an investment from this CVC deter other potential investors, customers, or acquirers?
What strategic resources can the CVC offer beyond capital? Look for resources like industry expertise, access to potential customers or partners, and operational support.
How would any conflicts of interest be handled?
Does the CVC require any exclusivity or rights of first refusal? These terms can limit future strategic and financial options for your startup.
What is the decision-making process like for follow-on investments? Knowing this can help you plan for future funding rounds.
Does the CVC have a history of successful exits? This can indicate the CVC's ability to support startups through to a successful conclusion.
How stable is the CVC? If the parent company faces financial difficulties, the CVC could be affected.
Finally, I would highly recommend talking to a few portfolio companies the CVC has backed in the past (those that were successful as well as those that were not). They can give you the genuine scoop on how the CVC treats portfolio companies.
One thing is clear: CVCs play a big role in VC, bringing more capital and adding a new dynamic to startup fundraising. The keys to navigating this lie in understanding their motivations, asking the right questions, and making informed decisions that align with your startup's long-term objectives. Wishing you the best of luck!
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CVC Glossary
Balance sheet investing: This is when corporations make investments directly from their own balance sheets, meaning the capital invested is the corporation's own operating capital. This type of investing is common in corporate venture capital, as opposed to raising a separate fund from outside investors.
Corporate venture capital (CVC): This is the investment of corporate funds directly in external startup companies. These investments are made by a dedicated venture capital division within a corporation.
Carried interest: This is a share of the profits of an investment or investment fund that is paid to the investment manager. In some CVCs, carried interest may or may not be part of the compensation structure for the investment professionals.
Evergreen fund: Unlike traditional venture capital funds, which have a fixed lifespan, an evergreen fund has an indefinite lifespan and doesn't have a mandated end date. The fund makes investments, and then the returns from those investments are reinvested back into the fund, allowing for continuous operation. Some CVCs use an evergreen structure.
Exit strategy: This refers to the way an investor plans to make a return on their investment. For CVCs, this could mean a strategic acquisition by the parent corporation, a sale to another company, or a public offering.
Limited Partners (LPs) and General Partners (GPs): In traditional venture capital funds, LPs are the investors who provide the capital, and GPs are the managers who invest that capital. In CVCs, the corporation typically plays both roles—it provides the capital (as an LP would) and manages the investments (as a GP would).
Portfolio company: This is a company that a venture capital firm has invested in. It's part of the firm's portfolio of investments.
Strategic investing: Unlike traditional venture capital, corporate VCs often invest with strategic goals in mind. This can include gaining access to new technologies, markets or business models that align with the corporation's long-term business objectives.
Syndicate: In venture capital, a syndicate refers to a group of investors who pool their resources together to invest in a startup. CVCs often participate in syndicates alongside traditional venture capital firms.
