How to build a successful venture studio: Ways to fund corporate ventures

In contrast to investing in standalone early-stage companies, financing corporate ventures requires an alternative approach. Factors such as control, financial risk and team compensation become particularly important to consider from a corporate perspective. Taking these three factors into account, there are four main ways for an organization to fund a corporate venture. 

VC Model

The VC model aims to spread risk among multiple parties and gives the founding team generous compensation by offering equity to attract the best talent and incentivize them. Further, the parent company finances the venture together with other investors which leads to lower financial risks, but also less control over the venture and its future direction. 

Joint Venture Model

Joining forces with another established company to co-fund a corporate venture is another way to share financial risk while ensuring the other investor has more than purely financial interest in the venture. This strategic model gives more control and access to twice the corporate assets, however, is a more complicated setup. 

Controlling Shareholder Model

The controlling shareholder model means the parent company supports the venture with 100% of the funding themselves but allocates generous equity incentives to the founding team. This allows the parent company to hire an excellent team while at the same time keep a high level of control over the direction of the venture.

The FinTech Model

In this model, the parent company funds the venture altogether but does not grant equity to the founding team in order to ensure full control over the venture. It means high financial risk and low team compensation, which might be necessary in highly regulated industries where the corporate must make sure that the venture is in compliance.

All four of these models are common ways of funding corporate ventures, however, in the real, much more complex world, adjustments will be needed. Two strategies might be combined into a hybrid model, or the financing approach might have to change over time. In the end, the best way to fund a corporate venture will depend on the interests of the corporation, characteristics of the venture and external influences.