Venture Capital Case Study
One area of venture capital investing that has been growing and showing much success recently is Corporate venture capital. A good case study example is GE Equity.
GE Equity offers a good venture capital case study for a number of reasons. It was begun in 1995 as the Corporate Venture Investing unit within General Electric Capital. The goal was very straight forward in the beginning. They shared the same basic goal as all venture capitalist which is to make profit. The idea of venture capital, of course, is to be willing to take risk to achieve higher return. GE Equity was willing to take some risks, but also had developed one of the most comprehensive due diligence checklists in the industry.
It was this ability to study companies in such depth and a growing awareness of the meaning of value added venture investment that led GE Equity to change its goals. In addition to merely seeking profitable venture capital deals, they would concentrate on companies that could benefit other General Electric companies in some way. The idea was to create a network of companies that had common interests and could benefit each other. By 2005, 85% of all GE Equity deals were made with this strategic purpose in mind.
GE Equity was handling somewhere between $1.2 and $1.5 billion dollars in investments. The average deal was investing between $3 and $5 million in each selected company. The equity interest was between 5% and 11%. The goal was a 30-40% return on investment within 3 to 5 years. GE Equity brought some very powerful resources to bear on reaching the goals for profitability.
The idea of network and the use of the internet enabled GE Equity to tie its companies together in a mutually beneficial arrangement that allowed sharing of information and opportunity. The company opened a web site called Community.com for the benefit of the companies in the network. The low equity interest left the entrepreneurs feeling very much in control of their own companies, but also feeling they were part of a large and very supportive family. The considerable management expertise of General Electric was available to them when needed.
This idea of value added investing and the building of a network of related companies with some common interests has proven highly successful for GE Equity. It provides a good case study of the opportunities available in the area of corporate venture capital investing. It also serves as a model for venture capital funds that concentrate their investment strategies in a specific area where the companies have mutual interests and can share helpful information and opportunity.