Resolving Muddled Objectives in Corporate Venture Capital

Large companies seeking access to new technologies — as well as the high returns promised by early investments in successful startups — have been establishing corporate venture capital (CVC) units for many years. But returns on those investments can be erratic, and new technologies can be difficult for the parent company to take advantage of. Why do many companies struggle to derive adequate benefits from their CVC efforts? We think that at the heart of the issue is a persistent confusion over objectives that ultimately makes CVCs difficult to sustain.

Dueling objectives have long been a problem: According to a 2015 survey of CVC investors, 79% aimed to support the parent company’s strategic aims, while 76% of respondents from the same sample claimed to prioritize financial returns.1 A 2021 study found that most CVCs still rely on ad hoc structures and governance processes that confuse parent companies and result in weak executive support and frequent shutdowns.2 Our research indicates that many CVCs continue to pursue both strategic and financial benefits, only to discover that these two goals are very difficult to mix in practice. There are no easy solutions to this problem, but our data and interviews have led us to some specific recommendations.

Our primary argument is that, once the parent company and the CVC unit agree on what they seek to gain from investments, that decision needs to drive everything else the CVC does: investment guidelines, team composition, the decision-making process, and the extent of its integration with its parent. Failure to align CVC objectives with parent expectations and then with organizational implementation is likely to be fatal.3

The Spectrum of Investment Models

Strategic-priority CVCs benefit the parent company by investing in startups that provide insight into and access to new technologies, products, services, and business ideas that the parent can take advantage of. Realizing these benefits requires close integration with the parent company’s business divisions. Financial-priority CVCs invest in startups primarily to generate a monetary return. Hybrid CVCs try to give equal weight to strategic benefits and financial returns. (See “CVC Investment Models.”) While financial returns are easily calculated by comparing sums invested to the current market value of a portfolio, evaluating strategic returns is much more difficult, especially when CVCs mix strategic and financial goals.

As of January 2025, our sample of 59 CVCs had adopted those investment models in relatively similar numbers. We classified 21 (36%) as financial-priority leaning, 20 (34%) as strategic-priority leaning, and 18 (30%) as hybrid. We included only CVCs that had made CB Insights’ annual top 10 list in terms of active investments between 2017 and 2024 and were still active in 2025. On average, these CVCs were 19 years old with a recent estimated fund size or investment budget of $749 million.

It’s important to note that most CVCs fall along a spectrum, not at the extremes (that is, wholly devoted to one or the other objective). We do not recommend a strategy on the extremes or squarely in the middle. These positions are difficult to sustain, either because they fail to provide any strategic value or financial returns or because they are mediocre at both. Instead, we suggest that CVCs prioritize strategic benefits or financial returns but aim to gain some benefits in the lower-priority category. In the majority of cases, it makes the most sense for CVCs to focus on strategic investments that yield some financial benefits, since this investment strategy is most likely to identify viable startups that can benefit the parent company. (See “The CVC Spectrum.”) All CVCs, theoretically, have a lower cost of capital than independent VCs, to the extent that they receive money from their parent companies and don’t have to compete for outside investors. Since most CVCs have some financial criteria, their main differentiation occurs in how high those financial bars are and to what extent CVCs access their parents for help with investment decisions.

Pros and Cons of Strategic, Financial, and Hybrid Approaches

Some practitioners argue that a CVC should emphasize strategic objectives as an investment in the parent company’s future. Les Vadasz, the founder of Intel Capital, one of the oldest, largest, and most successful CVCs, strongly holds this view, saying, “If you don’t have a strategic reason to invest, then I don’t think the CVC has a reason to be in business.” Vadasz expected his investments to help build demand for Intel’s semiconductor products and to provide some insight into future trends.4 He looked for a relatively quick impact on demand for the microprocessor business — for example, by investing in software companies whose applications ran on the Intel x86 chip architecture.

Siemens’s experience illustrates how difficult it is to maintain a strategic focus if that means passing up potentially good financial investments. Frank Andrasco, a veteran of Siemens Ventures and its successor, Next47, and now a senior investment director at Aramco Ventures, agreed that strategic benefits should be the main focus of a CVC. However, he found a pure strategic portfolio to be difficult to sustain. Siemens Venture Capital had been strategically oriented, but, because it had declined to invest in many deals that it later realized would have offered good financial returns, Siemens’s top management made its successor CVC unit, Next47, financially oriented. Andrasco moved on, frustrated with this decision. CVCs “are always going to be beaten to the best deals. … They are competing with Andreessen Horowitz and Sequoia. Why are they going to be better than those guys?” he told us.

Missing out on good financial investments is only part of the frustration for strategically oriented CVCs. Bailing out failing startups is also not sustainable, as Vadasz explained. “We invested money for strategic reasons,” he said. “Now, a little caveat here: You have to invest with financial discipline because companies that don’t succeed do not help you.” Also, strategic CVCs tend to become less strategic over time, according to Andrasco. “You can’t get in on the best deals because your strategic constraints create adverse selection,” he said. “So the only solution is to remove the strategic constraints.”

Another school of thought — the one to which Siemens pivoted — is that CVCs should focus on making money because startup investing offers the potential of extraordinary financial returns. Tim Chiang, a veteran of GE Ventures and Xerox Ventures, strongly holds this view, arguing that financial-priority CVCs can make quicker decisions than strategic-priority units because they don’t need to coordinate due diligence and priorities with a parent company.

In our sample, most CVCs owned by financial services firms based in Asia (such as Mitsubishi UFJ, SBI Securities, Daiwa, Mitsui Sumitomo Insurance, Fosun Capital, and CreditEase) were in the financial-priority category. They often treated a new venture fund as one of several investment vehicles for their clients. However, we’re seeing many other CVCs in this space as well, owned by Google, Panasonic, Baidu, Legend/Lenovo, and Next47 on the tech/industrial side, and SR One (GSK), Roche Venture Fund, Novartis Venture Fund, and Novo Ventures on the pharma/biotech side.

Some financial-priority CVCs in our sample occasionally capitalized on expertise in their parent companies for due diligence, startup mentoring, and business development, suggesting a different strategy than pure financial motivation. We call this model financial-priority/hybrid. Financial returns remain the primary goal, and there are no strategic investment criteria, but there is some help from the parent, such as making investment decisions or providing startup mentoring. (See “CVC Investment Models.”)

Many prominent global corporations try to give equal weight to strategic and financial objectives and create hybrid CVCs, but these give rise to the most difficult implementation challenges. There is no overarching goal to guide decision-making, and such initiatives can fall short on both strategic and financial expectations.

“The challenge is that hybrid CVCs are trying to do something that is … inherently serving two masters. And they don’t know which one will try to kill them,” Chiang told us. Investment teams also struggle to combine different goals: “It’s hard to force an embedded VC group to change colors on the spot,” he said.

Even CVCs that successfully balance financial and strategic objectives may be shut down when the parent company runs into trouble or shifts direction. GE Ventures illustrates this point. The unit’s founder, Sue Siegel, told us that she felt compelled from the outset to balance financial and strategic criteria. “With no financial discipline, you don’t have anything. … It’s all about the healthy exit,” she said. The GE Ventures portfolio did well, but in 2024, General Electric’s board closed the CVC and divided the conglomerate into three separate companies.

Execution Challenges for CVCs

While each of the investment approaches described above comes with particular execution challenges, the most noteworthy that we saw in our research involved deciding how to measure and realize strategic benefits, maintain financial discipline, and recruit and compensate a top-notch investment team. We’ll review each in turn.

1. Measuring and realizing strategic benefits. Getting an accurate and consistent picture of strategic benefits afforded by their investments seems to be a huge hurdle for strategic and hybrid CVCs. Managers we interviewed used both qualitative and quantitative metrics. Intel Capital analyzed investment success based on the money, time, and effort the company put in, and any strategic benefits and financial returns achieved.5 Vadasz focused on two types of strategic benefits while also trying not to lose money. One benefit was access to startups that had technology Intel wanted to use, such as advanced chip production equipment. The other, as described earlier, was relationships that would increase demand for Intel’s core microprocessor products.

GE Ventures tracked the number and type of partnerships that a portfolio company had with a GE business unit, such as for distribution or commercial product development. It recorded how much money GE Ventures put into the investments and how many employees were involved in supporting partnerships. GE Ventures and GE executives reviewed the portfolio at quarterly meetings.

Based on his experience at Siemens, Andrasco developed a model at Aramco Ventures to estimate what potential value a startup investment might create for the parent company. This model also gave the CVC a basis to compare actual strategic returns — losses avoided or revenues and profits gained.

Realizing strategic benefits requires that a CVC be tightly connected to the parent company. Intel Capital did this through a matrix structure when Vadasz managed the CVC. At that time, 15 to 20 people (of about 100 total employees) were attached to one of Intel’s functional and geographic divisions but worked primarily for him. These employees attended Intel Capital staff meetings, helped with due diligence, and worked closely with portfolio companies to develop their businesses. They were assigned to work with the CVC unit for a minimum of two years and often did so for longer.

Andrasco also relies on a matrix at Aramco Ventures, with about 15 of the 40 CVC employees based in the Saudi Aramco home office doing business development and recruitment for startups. Andrasco considers this structure to be “lightweight strategic,” which he defined as being open to the “possibility of the company and the startup working together … although it may not actually happen.”

As a hybrid, GE Ventures operated more like an independent VC, but with its parent company represented on the investment committee. Siegel invited GE executives to join the committee when the CVC was considering a startup in their business area. The GE executive got one vote but did not have veto power. The three GE business units that engaged most closely with startups assigned their employees to work with them while paying their salaries. In other GE business units, the CTO or chief strategy officer sat on the investment committee for a particular review. If the investment went forward, that executive became responsible for assigning people to serve as “shepherds” and develop a partnership between the GE business unit and the startup.

Our interviews suggest that for strategic-priority CVCs, a realistic target for close relationships or partnerships with the parent company might be one-fourth to one-third of the portfolio investments. But building and maintaining these relationships requires both the CVC and the parent company to make serious commitments in terms of people and time. Acquisitions were another way to realize strategic benefits, but the CVC managers we interviewed saw M&A as a separate corporate or divisional activity.

2. Maintaining financial discipline. Financial criteria are straightforward to implement. The CVC needs to pay attention to cash burn rates and possibly set a threshold floor for “exit value” — the minimal level of desired return should the startup be sold or go public. Determining the exit value requires estimating what comparable startups have sold for or noting what their IPO values have been, or who potential acquirers might be. Establishing value requires the investment team to estimate how far from a commercial product or service a startup actually is, what the competition looks like, and who the likely customers and acquirers might be.

Financial discipline also means spreading out your bets. For example, GE Ventures adopted what Siegel called a layered investment strategy. In the first layer, early-stage investments (Series A and some seed funding) were limited to 20% of the portfolio, given that they might take 10 to 15 years to pay off, while 80% of investments were later-stage — more likely to have an earlier payoff but less likely to have a supersized return. The second-layer investments were in strategic domains, such as health care, advanced manufacturing, or energy startups. The third layer of the strategy was to target syndicate members that might become investment partners. GE Ventures wanted to invest with the top 25% of VCs, such as Sequoia and Kleiner Perkins, based on their returns over the past 15 to 20 years.

Another aspect of financial discipline is to understand what leads to a healthy portfolio. Andrasco looks for a 12% annual appreciation in the value of Aramco Venture’s investments. Similar to Vadasz and Siegel, he has established a modest financial floor because of his experience that “CVCs that lose money don’t stay in business.” Andrasco also insists that CVCs should not negotiate special deals for their portfolio companies and create situations where the parent is the startup’s least-profitable customer.

3. Recruiting and compensating the investment team. These challenges are intertwined, because choices on how to compensate the investment team affect recruitment. We found that CVCs generally struggled to compete with independent VCs on this front. Independent VCs raise outside funds and charge a management fee (usually 2%). They compensate partners with a share of any equity gains (usually 20%), called carry or carried interest. In the U.S., tax authorities treat this type of income as long-term capital gains and impose taxes at a lower rate than for ordinary income. As a result, carry often leads to huge paydays. In contrast, most CVCs compensate managers and teams at a level similar to that for new business development. One alternative is for a CVC to offer large bonuses, sometimes called “phantom” or “shadow” carry, that are indirectly tied to investment returns. Another option is to create a separate CVC fund and compensate with carry, like an independent VC.

Next47 and Siemens Ventures, as well as Intel Capital and GE Ventures, did not compensate with carry, because senior management and board directors would not permit it. In contrast, Aramco Ventures gives out bonuses that incorporate financial returns based on phantom carry and estimates of strategic value achieved.

Intel Capital looked for people from Intel business units who were interested in a temporary assignment in business development compensated via bonuses. GE Ventures looked for talented early-career VCs who had not yet made partner in independent firms. Siegel offered the equivalent of a general partnership, heavy on cash and with long-term GE stock options.

The Bottom Line

We started this research believing that most CVCs should prioritize strategic returns because parent companies have a responsibility to invest in the future and startups can help them do that. We still think that strategic investments are the most valuable bets, especially since CVC financial returns are likely to be small for multi-billion-dollar parent companies. Nonetheless, if a parent company believes that it can make more money from venture capital than from other investments, and it wants to directly influence those investments, then a financial-priority CVC makes sense. In that case, financial CVCs should at least try to take advantage of their parent companies’ domain expertise, because this is their main advantage over independent VCs.

CVCs also need to realize that the objectives and situations of their parents will change over time, which in turn, will impact their missions and evaluations. During our research, for example, Time Warner, General Electric, and Xerox all closed their CVC units, even though we’d been told that the portfolios were performing well. Several companies (including NTT, Samsung, and Siemens) also launched multiple CVCs and funds to achieve different objectives. In early 2023, Microsoft’s M12 venture fund, which started out prioritizing financial returns, announced it was adapting its investment approach to incorporate more strategic considerations.6

There will no doubt always be some tension and change in priorities for CVCs that don’t have clear objectives and performance metrics. Perhaps the biggest challenge for CVCs is to build close relationships with their parent companies, for either strategic or financial investments, while still maintaining enough independence to avoid potentially bad investments.