The Art of Corporate Venture Capital Divestiture: Why and How Corporates Are Selling Off Their CVC Units

Corporate Venture Capital (CVC) units, once seen as strategic tools for innovation and growth within large corporations, are increasingly being sold off, spun out, or closed. This trend reflects shifting corporate priorities, economic pressures, and the evolving nature of corporate venturing itself.

 

Why Are Corporates Selling Off Their CVC Units?

Several factors drive corporates to divest their CVC arms:

- Strategic Shifts and Corporate Restructuring: Parent companies often change their strategic focus, especially after mergers and acquisitions or during cost-cutting phases. For example, Anglo American’s Decarbonisation Ventures was disbanded amid a broader restructuring and financial challenges, with its investments moved to less active management within the company.

 

- Financial Pressures: Venture units typically have negative cash flow characteristics, requiring ongoing capital disbursements before any exit returns. During economic downturns or when profits fall, these units are often among the first to be downsized or closed, as seen with Verizon Ventures after a period of falling profits and management reshuffling.

 

- Mismatch of Corporate and VC Objectives: Over time, the strategic rationale for investments may diverge from the corporation’s core business or strategic direction. This can lead to the sale of individual assets or entire portfolios to refocus corporate efforts on more relevant areas.

 

- Operational Challenges: Running a successful CVC requires dedicated teams and executive oversight. If the venture unit outgrows the resources or strategic interest of the parent company, spinning out the team into an independent VC fund can be a viable option

 

Common Approaches to Divesting CVC Units

Industry experience highlights three main divestiture strategies:

- Spin-Out of the Team and Portfolio: The CVC team and portfolio are spun out to form an independent venture capital firm. This requires careful negotiation among the corporate parent, the spin-out team, and potential investors. Spin-outs allow the venture unit to raise new capital and continue operations independently, preserving value and relationships with portfolio companies.

 

- Sale of Assets on a One-Off Basis: Corporates may sell individual investments that no longer align with their strategy. This approach helps focus resources on the most promising portfolio companies and can be a way to realize financial returns when strategic interest wanes.

 

- Sale of the Entire Portfolio: Sometimes, the entire CVC portfolio is sold, often due to a change in corporate priorities or inability to continue funding the unit. This approach helps portfolio companies find new homes with investors who can provide follow-on capital and maintain continuity.

 

Recent Examples of CVC Units Being Sold or Closed

AXA Venture Partners: Completed a management buyout (MBO) from AXA, becoming independent.

 

- Verizon Ventures: Closed after more than 20 years, following financial pressures and restructuring at Verizon. The portfolio is still managed by a few remaining managers, but no new investments are being made.

 

- Anglo American’s Decarbonisation Ventures: Disbanded amid corporate restructuring, with investments transferred to other business units with less active management.

 

- EMASA Ventures: Closed as part of a wider restructuring at the Chilean car parts company, reflecting challenges in the shift towards electric vehicles.

 

- ZX Ventures (AB InBev): The CVC arm ceased making new investments after key team members left, despite the parent company’s relatively stable performance.

 

Implications and Outlook

Corporate divestment of CVC units is not necessarily a sign of failure but reflects the natural lifecycle of corporate venturing and changing corporate strategies. Active portfolio management and planning for potential divestitures are crucial to preserve value, relationships, and reputation. Companies are advised to consider multiple alternatives and engage experienced partners to navigate the complex process of divestment successfully.

 

Corporates are increasingly selling off or spinning out their CVC units due to strategic realignments, financial pressures, and operational challenges. The trend involves various approaches from spinning out independent firms to selling assets or entire portfolios, aiming to optimize corporate focus and preserve venture value.