Key Takeaways
- • Corporate venture capital (CVC) funds differ from traditional VC because they pursue strategic value for a parent business alongside financial returns, according to David M. Rubin, Managing Director at Merck GHIF, writing in MedCity News.
- • Rubin argues that most CVC funds fail to deliver strategic value and outlines four practices: defining strategic value alongside financial return, leading internal collaborations, driving leverage through syndication, and delivering the payoff through continued engagement to exit.
- • A key derivative indicator of strategic value is whether the parent CVC business actively engages with portfolio companies through piloting, partnering, licensing, or purchasing their products or services.
- • Syndication lets CVCs coordinate negotiations, share board duties, extend financial reach, and benefit from pricing set by expert financial investors, while retaining the option to walk away when pricing exceeds internal models.
Summary
A venture fund's objective is to invest capital in early-stage companies to fuel growth, with the aim of an acquisition or public listing that returns capital at a risk-adjusted profit. Corporate venture capital differs because its goal is often to create strategic value for a core business in addition to financial returns. In a MedCity News opinion piece published through its Influencers program, David M. Rubin, Ph.D., a Managing Director at Merck GHIF who leads the drug discovery and precision medicine practice, argues that most CVC funds do not deliver on this strategic mandate.
Rubin defines strategic value broadly. For pharma corporate venture, it can include developing investments that generate a valuable new target, drug, or vaccine candidate; improving pipeline success probability; reducing R&D costs; and accelerating clinical trials across the value chain. Acquisition is not always necessary, but portfolio companies must be cultivated into standardized, scaled solutions for scientists, regulators, clinicians, patients, and payors. Rubin notes that valuing assets is partly art: financial value can be estimated through discounted cash flow or comparable-company analysis, while strategic value is harder to quantify. A practical proxy is whether the parent business engages with the portfolio company through piloting, partnering, licensing, or purchasing; a CVC unable to generate such engagement, he writes, delivers capital without a strategic return.
Rubin also emphasizes internal collaboration. Placing relevant investments requires dedicated workstreams with business leaders and subject matter experts to refine use cases, identify unmet needs, build pipelines, and conduct technical, scientific, and clinical diligence. He argues this engagement raises the probability of success in scientific markets and produces faster pilots and larger partnerships. On syndication, he writes that while most CVCs can lead rounds, syndicate creation offers leverage in negotiating terms, dividing board responsibilities, and considering future M&A, and that deals priced by expert financial investors tend to produce fair market prices. Funds can remain engaged through shareholder and information rights even with reduced board involvement. Where a company needs more hands-on building, a CVC may use a convertible note or lead a round, with a plan to delegate responsibility over time, a decision he says depends on platform strategic relevance, company stage, and board and management experience.
Rubin concludes that these practices work as an integrated pattern, with sourcing, pricing, and continued engagement through exit allowing strategic and financial returns to reinforce rather than trade off against each other. He credits success to recruiting and training leaders who work seamlessly with internal partners.
Rubin defines strategic value broadly. For pharma corporate venture, it can include developing investments that generate a valuable new target, drug, or vaccine candidate; improving pipeline success probability; reducing R&D costs; and accelerating clinical trials across the value chain. Acquisition is not always necessary, but portfolio companies must be cultivated into standardized, scaled solutions for scientists, regulators, clinicians, patients, and payors. Rubin notes that valuing assets is partly art: financial value can be estimated through discounted cash flow or comparable-company analysis, while strategic value is harder to quantify. A practical proxy is whether the parent business engages with the portfolio company through piloting, partnering, licensing, or purchasing; a CVC unable to generate such engagement, he writes, delivers capital without a strategic return.
Rubin also emphasizes internal collaboration. Placing relevant investments requires dedicated workstreams with business leaders and subject matter experts to refine use cases, identify unmet needs, build pipelines, and conduct technical, scientific, and clinical diligence. He argues this engagement raises the probability of success in scientific markets and produces faster pilots and larger partnerships. On syndication, he writes that while most CVCs can lead rounds, syndicate creation offers leverage in negotiating terms, dividing board responsibilities, and considering future M&A, and that deals priced by expert financial investors tend to produce fair market prices. Funds can remain engaged through shareholder and information rights even with reduced board involvement. Where a company needs more hands-on building, a CVC may use a convertible note or lead a round, with a plan to delegate responsibility over time, a decision he says depends on platform strategic relevance, company stage, and board and management experience.
Rubin concludes that these practices work as an integrated pattern, with sourcing, pricing, and continued engagement through exit allowing strategic and financial returns to reinforce rather than trade off against each other. He credits success to recruiting and training leaders who work seamlessly with internal partners.
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