What to consider when forming a Corporate Venture Capital program

October 11, 2022 | Myron A. Mallia-Dare, Joyce Pong


Corporations continue to look to innovation to increase value and expand capabilities. Traditionally, corporations focused on internal research and development (“R&D”) and acquisitions of strategic targets. Yet, innovation through R&D can have its limitations as it is funded internally and can be restricted by internal policies and procedures that may hinder innovation. Innovation through acquisition also has its risks, as the purchaser may not identify all the potential issues of the target when conducting their due diligence. Purchasers may also face issues when attempting to integrate the target into their existing business – particularly when the purchaser is a multinational corporation and the target is an emerging company.

To address these concerns, corporations have increasingly looked to establish a corporate venture capital (“CVC”) program to support and complement their innovation strategies and outsource strategic alignments to stay competitive. Through investment, corporations that have established a CVC program can gain invaluable market intelligence, and also invest in and understand future acquisition targets. For emerging companies and start-ups, CVCs offer funding as with traditional venture capital funds, but can also provide such companies with market and development support. CVCs can also be strategic partners to emerging companies as they may be potential customers or strategic partners.

What is Corporate Venture Capital exactly?

CVC, a subset of and different from traditional venture capital, is the investment of corporate funds directly into emerging companies. CVC programs allow companies to gain insight and access to new markets, trends and technologies.

The term “CVC” both broadly captures strategic investments made by large and established corporations in emerging companies, and also refers more narrowly to investments that a corporation makes through a related CVC arm dedicated to sourcing and making investments in start-ups, rather than direct strategic investments.

Objectives of a CVC program

CVCs are similar to traditional venture capital funds in that the goal is to invest in emerging high-growth companies that drive value back to the company. Both CVC and traditional venture capital funds are driven by financial returns.

However, CVCs, once known as “strategic investments”, also strive to advance the company’s strategic objectives. In addition to financial returns, the other goals of a CVC program could be to (i) identify and capitalize on synergies between the corporation and emerging company; (ii) develop the corporation’s technology; (iii) acquire the emerging company’s technology; and (iv) create commercial partnerships.

For the emerging company, and in addition to funding, CVC can offer (i) access to resources; (ii) access to customers; (iii) market knowledge; (iv) brand validation; and (v) wider networks.

As such, the pairing of CVCs may look to invest in emerging companies that operate in the same or complementary industries.

Choosing a legal structure

A CVC program’s strategic and financial objectives will inform how closely the CVC will coordinate with the corporation’s current operations — that is, its legal structure. There are three (3) main types of legal structures for CVC programs: limited partnerships, investment via an affiliate and fully integrated programs. Many factors should be considered when establishing the appropriate structure for a CVC program, including tax considerations. These considerations are beyond the scope of this article.

1. Formation of a limited partnership

CVC programs can be structured as a limited partnership operating as a separate legal entity from the parent company. A limited partnership is made up of at least one general partner (“GP”) and one limited partner (“LP”). In any partnership, the GP or GPs manages the partnership. CVCs may utilize this model of investment in two ways. First, they may look to form an independent limited partnership. The second approach would be to invest in a venture capital fund as a limited partner.

(a) Formation of a limited partnership

A corporation may look to form an independent limited partnership in which the parent company is the sole LP and a separate entity is incorporated that is the GP. Under this approach, the corporation can set the investment criteria and strategic direction of the limited partnership. This means that the CVC program can be focused on investing in portfolio companies that directly benefit the corporation. This approach can offer tax advantages, but these are beyond the scope of this article. The disadvantage is that this approach requires substantial capital investment for the corporation, and conflicts may still exist between the parent company and the investment arm.

(b) Investment as a limited partner

Alternatively, the corporation can invest as a limited partner in one or more independent venture capital funds. By joining as a limited partner, the corporation has quick and easy access to deal flow, invests in areas further away from the corporation’s core business and relies on the venture capital fund to make investment decisions. However, this structure also means limited influence and autonomy on the investments and fewer strategic incentives for the corporation. In addition, the CVC will have limited access to information relating to the day-to-day operations of the portfolio companies.

2. Through an affiliate 

A CVC program may also be structured as an affiliated legal entity of the corporation or a separate business unit within the corporation. Under this approach, the day-to-day management of the CVC program can be separated from the other aspects of the corporation as the CVC program can be managed independently from the rest of the operations of the rest of the business. As such, the investment selection and decisions can be separated from the parent company. Typically, the parent company will have oversight over certain decisions by way of an executive committee.

3. Fully integrated CVC program

A corporation can also form a CVC program internally, where the investment team consists of company employees. Under this structure, a specific investment department or business unit oversees and approves each investment. As this is an in-house CVC program, investments made are generally closely related to the business divisions of the parent company.

Running a successful CVC program

For a CVC program to succeed strategically and financially, a company should clearly define its investment goals, develop a strong program infrastructure, and establish deal sources, among other business best practices.

1. Have a defined investment thesis

While strategic investments produce financial value in the long run, CVC programs often have to balance strategic and financial objectives. For instance, a CVC program’s decision to invest in a portfolio company may be driven by its interest in the portfolio company’s technology or business processes. As such, the CVC may be willing to accept lower returns due to the potential synergies with the parent company’s operations or strategic direction. Having a clear understanding of the CVC program’s strategic direction and investment goals will inform which CVC structure would be most appropriate, though it is not critical that the CVC program has a defined investment thesis that is aligned with the parent company’s strategy.

2. Develop a strong infrastructure

Once an investment thesis is established, the CVC program must have the resources and structure required to reflect the investment thesis. This includes determining the level of autonomy the CVC program will have from the parent company. Greater autonomy may allow for the CVC program to take greater risks and make investments that may fall outside of the traditional scope of the parent company’s operations. Yet, the parent company should still look to maintain a level of oversight to ensure that no conflicts of interest exist and that no investment decisions are made that might cause reputational damage to the parent company.

The parent company must also ensure that adequate resources are made available to the CVC program to support its success. This includes ensuring that there are individuals with expertise in venture capital financing involved. When corporations initially consider investing in emerging companies, they may not have the internal expertise with negotiating minority investments. Without expertise in venture capital investing, corporations may treat these investments as if they were M&A investments. As such, the corporation may focus on ensuring that it has control of the operations and decision-making of the emerging company. In doing so, the corporation could limit the potential of an emerging company and stifle the future innovation that drove the corporation’s decision to invest in the first place.

Some additional infrastructure considerations include:

  • Who will manage the day-to-day program operations;
  • How will capital be allocated to the CVC portfolio and the targeted stages of investments;
  • The compensation structure for the corporate venture team; and
  • Key performance metrics for the CVC program.

3. Establish the deal pipeline

The volume and quality of investment deals are important factors to a CVC program’s success. Consequently, CVC programs should establish a robust communication framework to ensure that there is an efficient investment approval process. Internal communication includes frequent meetings between the investment team and consistent communication with the parent company. External communication includes outreach efforts to relevant start-up communities and engagement with portfolio companies.

There are three (3) main ways that CVC programs source deals:

  • Institutional venture capital firms: Forming relationships with institutional firms, which have a wider network and greater deal flow, is an important way for CVC programs to grow their deal pipeline.
  • Accelerators and incubators: Accelerators provide good sources for early-stage investments, as the participating start-ups have already undergone some sort of vetting process.
  • Informal networks: CVC programs often have analysts who scout start-ups on research platforms, attend venture capital events and gain referrals.


CVC programs have shown to be an effective way for companies to invest capital strategically to drive future growth and leverage disruptive innovation. The structures and points discussed in this article are not an exhaustive list of considerations relating to the formation of a CVC program, but it highlights some key issues that companies should contemplate. Companies who plan to engage in CVC should seek counsel with venture capital knowledge to guide their process.

The authors would like to acknowledge the contributions of Wendy Wang, 2022 Summer Student, in the writing of this update.


This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.

Miller Thomson LLP uses your contact information to send you information electronically on legal topics, seminars, and firm events that may be of interest to you. If you have any questions about our information practices or obligations under Canada’s anti-spam laws, please contact us at privacy@millerthomson.com.

© 2022 Miller Thomson LLP. This publication may be reproduced and distributed in its entirety provided no alterations are made to the form or content. Any other form of reproduction or distribution requires the prior written consent of Miller Thomson LLP which may be requested by contacting newsletters@millerthomson.com.