Like the rest of VC, corporate funds are subject to the J-curve effect and power law dynamics. They must be measured on a 10-year timescale.
A recent study by Spectra Investments sent shockwaves through the Brazilian corporate innovation ecosystem. It showed that 72% of corporate venture capital (CVC) funds in Brazil currently have a negative internal rate of return (IRR), averaging -10% across the board.
Looking at these figures, observers often jump to the conclusion that the corporate venture model is broken. The industry’s standard defence usually sounds like this: “CVCs don’t just care about financial returns; we look at strategic value.”
That defence is true, but tired. Everyone knows corporate funds want market intelligence and tech synergies. Spectra’s own data shows that 34% of the mapped exits were acquisitions by the CVC’s parent company.
Still, leaning entirely on “strategic value” to excuse negative IRRs is a mistake. It distracts from deeper flaws in how people analyse these fund metrics. The real issue is trying to measure corporate funds without taking the basic mechanics of venture capital into account. Three main factors are usually missing from the conversation:
The J-Curve effect
The current generation of CVCs is too young to be judged by IRR alone. Brazil experienced a corporate venture boom in 2021 and 2022, meaning most of these vehicles are far from completing a standard investment cycle. Spectra’s sample reflects this, with 30% of the funds being less than three years old.
In venture capital, early returns are almost always negative—the so-called J-Curve. Management fees drag down the balance, and bad investments fail fast and get written off early. The successful companies need five to ten years to mature and exit. Checking a venture fund’s IRR at year three is like calling a basketball game in the first quarter. You can’t measure a ten-year asset class with a three-year yardstick.
Power Law dynamics
Venture capital operates on a power law distribution. A high volume of write-offs is normal. Spectra’s broader data on the private equity and venture capital industry points out that tech deals carry a 40% total loss rate. Only about 15% of deals (those returning more than 5x) generate 85% of the overall returns.
Many traditional, purely financial VC funds also carry negative IRRs before reaching maturity. Holding CVCs to a different standard and criticising them for showing the exact same statistical distribution as the rest of the early-stage market ignores how tech investing actually works.
Value capture happens outside the fund
Corporate funds have a dual mandate. The GCV World of Corporate Venturing 2025 survey confirms that while financial returns matter globally, strategic goals—like preparing for Horizon 3 disruptions or supporting Horizon 1 core businesses—are just as critical.
Independent VCs optimize strictly for fund-level multiples. Corporate funds, meanwhile, frequently act as an M&A pipeline. Again, Spectra notes that over a third of exits in their study were acquisitions by the CVC’s parent company.
If a parent company acquires a portfolio startup early, the fund’s IRR might stay flat because the startup’s valuation upside is capped. But if that technology ends up cutting the corporation’s operational costs by millions or creating a new revenue stream, the parent company’s balance sheet wins. A fund-level IRR calculation will never capture that value.
Moving forward
Spectra’s numbers are a useful reality check. They push corporations to move past the innovation hype of 2021 and bring real discipline to their venture operations.
That said, declaring the CVC model dead based on these early figures misses the mark. Corporate venture is a long-term play. Financial discipline is necessary to keep these programs alive, but success has to be measured accurately. This means giving the portfolios time to mature past the J-Curve, accepting the heavy loss rates of the power law, and recognising that a corporate fund’s biggest financial wins often show up on the parent company’s balance sheet, not the fund’s IRR report.
Ricardo Kahn is director of consulting and innovation at Valetec Capital, a Brazil-based investment firm, specialising in corporate venture capital and open innovation.
