Companies Invest in Start-Ups to Grow

Companies Invest in Start-Ups to Grow

How does a company meet its growth targets?  Typically, by internal innovation, strategic acquisition of existing companies, … or investment in future acquisition target start-ups under a company funded venture capital program (“CFVC”).  Each has its limitations and benefits, but let’s focus on CFVC, where a business may include in growth strategies a strategic alignment with a new or emerging company, which gives the added benefit of growing the acquisition to meet the acquiring company’s future needs, without all of the risks.  It also can provide market intelligence, access to new markets, technologies and market trends.

CFVC arms of a business are intended to drive value back to the company and advance the company’s strategic objectives in technology, market resources and knowledge, new customers and brands, and new products, all without the bigger risks to the CFVC investor company.  Depending on how much control the CFVC wants, it typically moves forward with a start-up direct investment or investment into an affiliate that is the investor.  The CFVC (either as the parent company directly, or through a subsidiary or affiliate) typically would participate in the start-up as the limited partner, putting the risks on the general partner.  Either way, legal, tax and investment goals drive the investment vehicle, control and expected returns, whether monetary, market growth, technology or company product expansion.  But there are other considerations, like potential start-up failure or reputational damage, allowing the CFVC to be shielded, since it is only an investor.

Other benefits are that the CFVC typically brings to the start-up expertise in financial matters, operations, innovation, and performance metrics, all which can be focused and guide the start-up toward potential future acquisition by the CFVC company.  In this way, CFVC programs can be effective for companies to invest capital strategically to drive future growth and leverage disruptive innovation, without all of the risks.  Here at Epps & Coulson, LLP, our transactional department is ready to help you plan strategic investments and grow.  Please feel free to contact Dawn at: for any questions.

Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.  It is likely considered advertising.  Epps & Coulson, LLP encourages you to call to discuss these matters as they apply to you or your business.

Attorneys admitted to practice in California, New York, Colorado, Texas, and Oregon