How to Harness the True Value of Corporate Venture Capital

September 13, 2022

Corporate Venture Capital (CVC) can be a very useful tool for dealership groups – as long as they know how to use it. While it’s natural for automotive groups that have been solely family-owned for decades to be leery of outside investment, acquiring some private equity financing can be the most effective, fastest way to:

  • Grow your business
  • Expand upon your ideas
  • Find new geographic territory
  • Capitalize on an open franchise point
  • And more! 

Let’s take a closer look at what CVC is, how it compares to “regular” venture capital (VC), a brief history of CVC, some advantages of CVC, and how you can use CVC to further your business goals. 

What is Corporate Venture Capital (CVC)?

When you hear the words “venture capital,” you may think of risky investments in up-and-coming new tech companies in Silicon Valley and other similar locations. “Pure” VC investors are well aware that most of their investments will not pan out, while hoping for an occasional “home run” whose success will more than make up for their other losses. 

CVC is a slightly different animal. Instead of early-stage investments in the next Amazon, Apple, or Google, CVC looks for investments that will enhance its current operations. A great many large companies have units that are dedicated to investing in new ventures that can create additional value for their operations – and keep them ahead of their competition. This means that there must be a connection between the company providing the CVC and the company being invested in. The company providing the CVC may also provide the targeted venture with the benefits of its expertise, including technologies, sales practices, distribution networks, and other resources.

In terms of CVC activity within the world of automotive retailing, we are usually talking about the large publicly-funded dealer groups, who use some combination of cash and stock to acquire dealerships that are available on the buy-sell market. 

At the OEM level, manufacturers including Stellantis, Toyota, Porsche, and Volvo are also practicing CVC by investing in a variety of automotive and mobility startups.

A brief history of Corporate Venture Capital

The first instance of CVC occurred in 1914, when the president of DuPont, the maker of chemicals, invested in a still-private six-year-old startup by the name of General Motors. DuPont’s motivation for the investment in GM was to develop the automaker into a large user of DuPont’s paints, plastics, and other products. This investment paid off handsomely for DuPont, both strategically and financially, and set the pattern for CVC going forward. Many companies have taken this approach over the intervening years, investing billions of dollars in CVC with varying degrees of success. 

Corporate Venture Capital comes to auto retailing

The 1990s saw the formation and rise of the six publicly-traded dealer groups, which have grown and prospered through a continuous process of acquiring more dealerships:

  • Penske (1990)
  • Group 1 (1995)
  • Asbury (1995)
  • AutoNation (1996)
  • Lithia (1996)
  • Sonic (1997)

On March 10, 2015, Berkshire Hathaway (BH) completed its acquisition of the Van Tuyl Group, the largest privately held dealership group in the United States. At the time, this was the largest transaction in the history of automotive retail. It included 78 stores with sales of 237,501 new and used cars and revenues of close to $8 billion. BH purchased its controlling stake in Van Tuyl for $4.1 billion.

The ongoing profitability of automotive retail, combined with a plentiful supply of retirement-age dealers with an interest in selling, will assure the growth of these entities for many years to come.

Advantages of Corporate Venture Capital

There can be many advantages to partnering with a company using CVC. These include:

  • A long-term view that comes from a corporate company structure
  • Marketing, sales, and operational efficiencies and consistency
  • Access to cost-effective supplier networks
  • Deep pockets to enable future expansion and growth

How you can use Corporate Venture Capital to further your business goals

Selling your dealership to a publicly-traded entity can be a great way to achieve the goals you have for your dealership, in both professional and personal terms. Dealer principals who wish to exit the business can sell 100% of their company to the acquiring entity, while those who wish to continue in a management role can negotiate a minority ownership stake that gives them some skin in the game until they wish to exit. 

While most CVC happens through the sale of your dealership to a public dealer group, let’s also keep the Berkshire Hathaway/Van Tuyl deal in mind. BH is a huge multinational conglomerate which wholly owns many different kinds of businesses, including GEICO, Duracell, Dairy Queen, BNSF Railway, Fruit of the Loom, and NetJets. 

BH management decided that a particular private dealer group would be a perfect addition to its portfolio. Because the group was well-run and Berkshire had no specific expertise in running an automotive business, it left the presiding Van Tuyl principal in place to continue growing the business. The big difference, post-acquisition, is the sheer financial power that comes from having BH, with a market capitalization of over $600 billion, as the majority owner. The possibilities are endless:

  • If Berkshire Hathaway wants to grow its automotive business? Buy more dealerships!
  • If Berkshire Hathaway wants to try a new auto retailing concept? Convert a few existing stores and try it out!
  • If Berkshire Hathaway wants to expand into new geographic territories? Buy a high-performing dealer group in that territory!
  • If Berkshire Hathaway wants to capitalize on an open franchise point? Just swoop in and grab it!

This is the potential power that CVC can unlock for the future of your dealership.

At the OEM level, manufacturers including Stellantis, Toyota, Porsche, and Volvo are also practicing CVC by investing in a variety of automotive and mobility startups.

DCG Capital understands your financing needs

DCG Capital stands ready to consult with you at any time, helping your dealership get access to the financial tools that will help you nurture your business, better your impact on your community, and foster a greater legacy. From helping you find a lender to advice on private equity to CFO consulting services, we have all of your capital-based needs covered, and our team wants to help you succeed in a changing automotive industry.

Contact DCG Capital today to learn more about how our financial services can be a major boost to your dealership.