Creating Value Through Corporate Venture Capital Programs: The Choice between Internal and External Fund Structures

We explore the appropriateness of structuring CVC units internally (the corporation makes investments off its own balance sheet) versus externally (the corporation, acting as a limited partner, endows a separate legal entity managed by general partners with capital to invest on its behalf). We study the implications of this structural choice on i) scope of investments, ii) balance between strategic and financial objectives, iii) performance measurement, iv) deal sourcing and due diligence, v) post-investment involvement of the corporation, vi) HR issues, and vii) exit considerations. We conclude with recommendations for corporations on when to employ internal versus external CVC structures.