Corporate venture capital has been through a dramatic cycle. The boom years of 2020-2021 saw corporates spraying money everywhere. The subsequent correction was brutal. Now we’re in a more sustainable phase, and the models that work are becoming clearer.

I advise both corporates on their CVC programs and startups on working with corporate investors. Here’s what I’m seeing.

The Current State

CVC activity declined significantly from 2021 peaks but has stabilized. What’s changed is the character of the activity:

Strategic over financial. CVCs are increasingly focused on strategic benefit rather than financial returns. The days of corporates competing with traditional VCs on purely financial terms are mostly over.

Longer decision timelines. The frenetic pace of 2021 - term sheets in days, closings in weeks - is gone. Corporate decision processes are reasserting themselves.

More selectivity. CVCs are doing fewer deals, with more diligence. The spray-and-pray approach proved expensive.

Focus on commercial engagement. The most successful CVC relationships involve actual commercial work between corporate and startup, not just capital.

Industry concentration. CVC activity is concentrated in industries with high strategic stakes in emerging tech: healthcare, financial services, energy, automotive.

What Works for Corporates

Based on programs I’ve seen succeed:

Clear strategic mandate. The best CVC programs have explicit articulation of what they’re trying to achieve and how investments connect to corporate strategy. “Learn about emerging technology” is too vague. “Build relationships with AI companies that could transform our supply chain” is actionable.

Commercial partnership path. Investments that include commercial relationships - pilot projects, procurement discussions, partnership agreements - create more value than pure financial investments. The startup gets a customer and validation; the corporate gets insight and potential advantage.

Realistic return expectations. Financial returns from CVC are typically below top-tier traditional VC. Corporates that expect VC-level returns will be disappointed. Corporates that measure success on strategic outcomes will find more to like.

Speed and autonomy. CVC programs that require full corporate governance processes for every decision can’t compete effectively. The ones that work have delegated authority for deals within defined parameters.

Integration with business units. CVC that operates independently from the business units fails to deliver strategic value. Close connection with operating teams - involving them in sourcing, diligence, and portfolio engagement - is essential.

Patient capital. Startups backed by CVCs with long time horizons are easier to work with than those facing quarterly scrutiny. Structuring the program with appropriately long fund lives helps.

What Doesn’t Work

Common failure patterns:

Chasing deals. CVCs that try to get into hot rounds alongside top-tier VCs consistently lose. They don’t bring enough value to win competitive deals, and they often end up in weaker companies.

Signaling risk. A CVC investment signals that you’re relevant to that corporate’s strategy. If the corporate then doesn’t become a customer or partner, what does that say about the startup? CVCs that invest without follow-through damage their portfolio companies.

Capability building without investment. Some corporates want startup engagement without writing checks. This attracts lower-quality startups - the best ones have choices and prefer investors with capital commitment.

Short-term pressure. Corporate budget cycles often conflict with venture timelines. Programs that face budget cuts during downturns lose credibility with the startup ecosystem.

Strategic overreach. Some corporates want investment rights, board seats, information rights, and co-development agreements - a package that discourages quality startups from engaging.

What Works for Startups

If you’re a startup considering CVC investment:

Evaluate the commercial relationship separately. Would you want this company as a customer or partner regardless of their investment? If yes, the investment might be valuable. If no, think carefully.

Understand their decision process. How autonomous is the CVC team? What approvals are required? How long do deals typically take? Set expectations appropriately.

Protect your flexibility. Be careful about terms that restrict your ability to work with competitors, share information, or pursue exits. Strategic terms can be more constraining than economic terms.

Check references. Talk to other portfolio companies. How does the CVC actually behave as an investor? Do they follow through on commercial commitments?

Consider signaling. A CVC investment signals things about your market positioning. Make sure those signals align with your strategy.

Plan for relationship changes. Corporate strategies change. CVC teams turn over. Business conditions shift. What happens to your relationship if the corporate’s priorities change?

Emerging Models

Some newer approaches are gaining traction:

Commercial-first programs. CVCs that start with commercial pilots and only invest in startups that demonstrate value through actual work. This aligns incentives and de-risks investments.

Ecosystem investment. Rather than direct investment, some corporates invest in traditional VC funds as LPs, gaining exposure and information without the operational burden of running their own program.

Venture building. Corporates creating and spinning out new companies rather than investing in external ones. This can work for opportunities close to corporate core competencies.

Open innovation partnerships. Structured engagement programs that don’t involve equity investment but create meaningful commercial relationships. Lower commitment than CVC, potentially faster moving.

Making the Relationship Work

For both parties, successful corporate-startup relationships share certain characteristics:

Clear mutual benefit. Both sides understand what they’re getting from the relationship and believe it’s valuable.

Appropriate expectations. Corporates understand startups move fast and can’t always prioritize large-organization needs. Startups understand corporates move slowly and have legitimate process requirements.

Active management. The relationship needs ongoing attention. A check at closing and annual board attendance isn’t enough.

Honest communication. If priorities change, say so. If commitments can’t be met, address it early.

Exit planning. How does this relationship evolve? What happens at acquisition? What if the startup pivots away from the corporate’s strategic interest? Best to discuss upfront.

CVC isn’t going away. But it’s maturing into something more sustainable and, potentially, more valuable for both corporates and startups. The key is approaching these relationships with realistic expectations and genuine commitment to mutual benefit.