São Paulo – Brazil 2023

FGV EAESP – MPGI

The influence of Corporate Venture Capital when

participating in investment rounds for startups
Pedro Lucas de Castro

Thesis presented to Escola de Administração de Empresas de São

Paulo of Fundação Getulio Vargas as a requirement to obtain the
title of Master in International Management (MPGI).

Knowledge Field: International Economics and Finance,

Internationalization of Companies

Adviser: Prof. Dr. Juliana Bonomi

São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

Who?

| Call me: Pedro

| Born and Raised at: São Paulo, Brazil
| Age: 26
| Passionate about: Innovation + Investments
| Bachelor at:
| Master at:

| Working at:
São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

For today

#1 Startups and Venture Capital

#2 Corporate Venture Capital

#3 The fundraising importance and types

of investors for startups

#4 Research question and methodology

#5 The impact of CVCs at startup

valuation

#6 Conclusion
 São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

Everything has a start

#1

3 The term “startup” itself didn't appear in the English

language until the late 1970s, but the concept of a
4
startup exists for much longer.
5
The earliest form of a startup was a small business, and
6
while they are still common today, they were even more
prevalent in the early days of the United States. In fact,
small businesses were essential to the growth of the
country, as they provided goods and services that larger
companies couldn't or wouldn’t.

Thomas Edison, co-founder of GE, was the first recipient of a patent in

the United States for the incandescent lamp in 1880.

Source: “The history of startups From early days to today” Faster Capital, 2023
 São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

It’s not about size

#1

4 It’s almost impossible to identify how many startups exists in the world exactly, but the 2019 study from
TechCrunch estimates that +300 Million startups born every year and it’s considered to exists more than 1 Billion
5 companies operating with a startup profile¹.
6
²From those 80% survives more than a year, and from the survivors, a smaller sample will ever reach funding from a
Venture Capital Fund.

Historically, fewer than 1% of U.S. companies have raised capital from VCs.

Source: ¹“Which types of startups are most often profitable?” TechCrunch, 2019; ²Six Myths
About Venture Capitalists” Diane Mulcahy, 2013
 São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

I’m going on an (ad)Venture

#1

2 “Venture capital (VC) is a subset of private equity market

3 that targets early-stage, high-growth potential companies”
- Gompers & Lerner, 2001.
4

5 VC funds usually serves as a financial line for startups

and expanding businesses by providing funding in
6
exchange for equity or convertible debt.

Despite the Covid outbreak, the US VC

funds raised around US$ 170B just in 2022.¹

Source: The Economist “Venture capital’s reckonin”, 2022; Gompers, P., & Lerner, J. (2001). “The
venture capital Revolution”; The Economist cover, November 2021; ¹Pitchbook data
 São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

Beyond a cool name

1

#2 “Corporate Venture Capital (CVC) constitutes investments made by established corporations in early-stage
3 companies, or early-stage focused funds, with an aim to achieve strategic objectives such as innovation, market
expansion, or improving competitiveness”
4 - Dushnitsky & Lenox, 2005.
5
With different goals CVCs are getting closer to startups, despite economic conditions.
6

66% of CVC managers are mainly or entirely focused on strategic side of startup
investments and only 12% has financial return as a primary focus.

Source: Ilya Strebulaev & Amanda Wang, Stanford 2023; Dushnitsky, G., & Lenox, M. J. (2005). “When
do incumbents learn from entrepreneurial ventures?”
 São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

Show me the money

1 The “ Startup J curve” easy point that startups face different goals each stage of development:
2
Incubator Angel Investor Seed Money Venture Capital e Private Equity IPO
#3

4
Potential Financial Result

5 Series C

6
Series B

Series A

MVP
Ideation POC Traction and Scale Time

Source: “The Start-Up J Curve”, Howard Love

 São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

Are you the one?

1

#3

4 VC Firms CVC Angel Investor

5

Banks and
Friends &
Government Family Offices
Family
Agencies

Sources: Alejandro Cremades, Forbes 2019

 São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

Does it make a difference?

1

3 o If there is a right startup for an investor, is there a right investor for a startup?
#4 o What’s the difference of the money that comes from a VC or a Corporation?
5 o Having a Corporation as an investor make a difference for the startup?
6 o Does the startup value change depend on the type of investor it has?
o Does Corporate Venture Capital participation in the funding round influence positively and significantly on
startups’ valuation?
o Does the Corporation being part of the sector as the startup invested adds more value for the funding round?

Source: Author
 São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

Yeah Science!
1
The methodology for this research was based on the analysis of 160 thousand funding rounds from 2013 to 2023.
2
Rounds that occurred with firms with 250 employees or less that received funding from a CVC or VC firm
3
between January 2013 and May 2023.
#4
o Valuation: The startup's evaluation in US million dollars at
5
the time of the funding round.
6 o Revenue: The startup's Revenue during the funding round.
o Investment: The total sum in US million dollars put into the
139,636 VC 25,565 CVC startup during the round.
o Multiples: The valuation to income ratio for the funding
rounds rounds round.
(84,5%) (15,5%) o CVC: A binary variable signifying whether a CVC
participated in the funding round (1 for Yes, 0 for No).
o Same Sector: A binary variable indicating if the CVC
participating in the round operates in the same sector as the
startup (1 for Yes, 0 for No).

Source: Author
 São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

See it to believe it
1

2 All the data and its variables were analyzed with

Ordinary Least Squares (OLS) regression on Python to
3
estimate the causal impact of CVC participation in
#4 investment rounds compared to traditional VC-led
Rounds.
5

6 This statistical technique will give us enough results

rather the CVCs does make a difference for the startups
valuation at the round.

Considering the P value and coefficients, we can

presume that CVCs does influence on startups
valuation, but we can’t say the same about they
operating on the same sector.
Overall regression model estimated using the entire dataset.

Source: Author
 São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

No mambo jambo
1
The CVC participation at startup funding rounds not only present a positive and significant impact but it’s also growing.
2

#5

Source: Author
 São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

Cristal clear
1
In an overview for each type of transaction, we see that startups with similar revenue does receive a higher valuation when
2 CVCs are enrolled on their rounds, and this effect it’s also getting stronger every year.
3

#5

Source: Author; PitchBook data base

 São Paulo – Brazil 2023 FGV EAESP – MPGI Thesis presentation by Pedro L. Castro

So what?
1

2 Companies are closer to startups and became an important potential investor

3 Having a CVC as an investor does add value for the startup, despite the sector
4

5
The CVC operating at the same sector doesn’t say much for the startup valuation
#6

VCs might be better at negotiation than CVCs

CVCs might have better deal pipelines

New researches can understand more variables on the same transactions

Source: Author
 Thank you!
São Paulo – Brazil 2023
FGV EAESP – MPGI

Thesis presented to Escola de Administração de Empresas de São

Paulo of Fundação Getulio Vargas as a requirement to obtain the
title of Master in International Management (MPGI).

Knowledge Field: International Economics and Finance,

Internationalization of Companies

Adviser: Prof. Dr. Juliana Bonomi