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  • Thomas Thurston

Revenue-Based Funding by Corporations

Updated: Jul 25, 2023

There’s a difference between traditional venture capital and corporate venture capital.  While standard VCs are primarily concerned with financial goals (i.e. a high IRR%), corporate venture capital (CVC) groups such as Intel Capital, GE Capital, and the J&J Development Corp. have dual goals: financial and ‘strategic’ value.  CVC investments must somehow assist the core business of their parent companies in addition to creating financial returns.

Strategic Value Overrides Financial Returns

Dual emphasis on both strategic and financial objectives creates unique challenges for CVC practitioners.  For example, CVC investors often find themselves faced with highly strategic deals that have little financial attractiveness from an equity investment perspective.  In other words, due to their strategic missions, CVCs often invest in highly strategic businesses that no financially-focused VC would otherwise touch with a ten foot pole.  By one estimate, 65% of CVC investments were either for strategic value only, or with strategic value as the primary concern (vs. financial returns).

CVC slide 1

CVCs Favor Mid-to-Later Stage Firms

CVCs contribute a critical piece to the venture investing pie.  In 2000, CVCs invested around 16% of all venture capital that year.[ii] Compared with traditional VCs, CVCs also tend to do fewer seed and early stage investments.  For example, a 2006 study indicated that the percentage of VC investments in seed and early stage firms (20%) was around one and a half times larger than that of CVCs (13%).  In both cases, seed and early stage investments were a relatively small proportion of overall deals.

Revenue-Based Funding for Strategic Deals

With an emphasis on highly strategic (and not always financially attractive), mid-to-later stage deals, CVCs have increasingly discovered revenue-based investing as an alternative to traditional equity-based venture capital.

While not every deal lends itself to revenue-based funding (RBF), CVCs can employ RBF structures in the case of highly strategic investments where a target business has no likely exit (i.e. M&A or IPO).  For example, many highly strategic portfolio companies have strong revenue and respectable growth.  However they may not be likely to create the “blockbuster” growth, followed by a prompt exit, that is required for sound equity-based returns.

In such cases, RBF allows the CVC to assist a strategic firm (with an RBF cash infusion) and to then enjoy financial returns based on a percentage of the target’s revenue.  Compared with the 15% of CVC deals that have no financial merit, or even the 65% where strategic value trumps financial prudence, RBF can lower the risk of pursuing strategic value.  RBF allows CVC to finally enjoy strategic and financial returns in deals without exits.

As RBF is best suited for investments in businesses with established revenue (since repayment is based on revenue), RBF also complements CVCs’ general preference for mid-to-later stage deals.  After all, mid-to-later stage businesses are more likely to have revenue than seed and early stage startups.

Better in Both Worlds

Historically, CVCs have faced daunting tradeoffs between strategic value and financial returns.  By favoring strategic value, lower financial returns have often hampered corporate enthusiasm for CVC in general – making fewer resources available for CVCs and the businesses that depend on them for capital.

This is the promise of corporate RBF.  By allowing CVCs to better enjoy both strategic and financial returns, a positive net impact is created for corporate investors and entrepreneurs alike.

This article can also be found at RBF Central


[i] MacMillan & Roberts, et al, Corporate Venture Capital (CVC); Seeking Innovation and Strategic Growth, National Institute of Standards and Technology, U.S. Department of Commerce (2008).

[ii] MacMillan & Roberts, note supra.

[iii] MacMillan & Roberts, note supra.


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