Making Corporate Venture Capital Work

In fact, 50% of US parent firms invest primarily strategic with financial concerns, 20% financial with strategic concerns, 15% purely financial and 15% purely strategic. As a rule, incumbent firms, whether European or American, invest primarily for strategic reasons. A specialized team to support strategic corporate firms and innovation units. Looking at quarterly trends, Q4’18 saw the highest number of active corporate VCs ever, with 429 CVCs investing in the quarter. This number represents 59% year-over-year growth, up from 270 active corporate investors in Q4’17. As the realm of CVCs becomes increasingly professionalized, more and more CVCs fall into the first category. So-called “tourists” often are made up of brand new and relatively inexperienced venture arms of companies that have done very few deals and haven’t had time to develop a strong process or dealflow strategy.

As a result, nearly all executives believe that innovation is a top priority for their corporations, with the vast majority dissatisfied with the performance of their innovation programs . Before engaging with a CVC, or any potential investor for that matter, the most important step is to do your research. What’s his/her background and what deals has he/she done with this venture group? So what do entrepreneurs seeking investment need to know about this relatively new but powerful participant in the funding process?

What Is Corporate Venture Capital?

Together, the two firms and their principals have decades of experience advising founders during and after their capital raises. To do this well, a CVC ideally should have a well-defined mandate and IC purpose statement — to deem investment opportunities as strategic, for example. A business unit leader or CEO who spends about an hour on a monthly IC session is nearly completely immersed within the corporate mindset while making a decision related to the venture world. With that perspective, startups should look for CVCs that provide real-world, actionable feedback to portfolio companies so they can tweak and improve their solutions for a growing customer base. In addition, startups that onboard CVCs as actual customers should make sure they’ll get exposure to their large-enterprise procurement processes, supplier verification and legacy-systems integration. Last but not least, the CVC’s customer account should add real, incremental revenue to the startup’s bottom line. A mezzanine fund is a pool of capital which invests in mezzanine finance for acquisitions, growth, recapitalization, or management/leveraged buyouts.

• Such inconsistent behavior certainly contributes to the low regard with which many private venture capitalists view in-house corporate VC operations.
• An acquisition is the most amount of commitment to a project a company can give.
• Matt Carbonara, Managing Director, Venture Investments at Citi Ventures, investing in early-stage startups in the United States and Israel.
• Industry – Healthcare segments including medical devices, medical and information technology and services.
• In their eyes, the wild swings are further evidence that big companies have neither the stomach nor the agility to manage investments in high-risk, fast-paced environments.

With CVCs strategically and financially driven objectives, these capitalists can maintain their position as a market leader, even if there are small companies stealing the scene and overtaking the pioneering giants. One example of this is Snapchat and Instagram, both of which are now owned by Facebook.

What You Should Know About Working With Corporate Venture Investment Committees

For those seeking to obtain internal alignment and support for a new or expanded CVC program, “following the herd” is of course not an adequate business rationale. Corporate venture capital is primarily about innovation, competitive advantage and survival.

One primary strategic reason many healthcare-related CVCs cite for investing is to seek new directions and develop new products. For this reason the focus of most CVC units is broader than their parent company, as stated previously. In 2016, Intel Capital and Google Ventures tied for the most active corporate venture capital investors. Salesforce Ventures and Comcast Ventures rounded out the third and fourth spots, while Qualcomm Ventures, Cisco Investments, GE Ventures, and Bloomberg Beta filled out the top 8. Venture capital is a form of financing that provides funds to early stage, emerging companies with high growth potential, in exchange for equity or an ownership stake. Venture capitalists take the risk of investing in startup companies, with the hope that they will earn significant returns when the companies become a success.

Financial Analyst Training

Of course, many options never become valuable, and many emergent investments will never be important to an organization’s strategy. It is important to let these options lapse and settle for whatever financial returns have been earned. Thus, managing these investments requires balancing financial discipline with strategic potential. Partnering with private VC funds, and following their lead, is one way to impose financial discipline on the process. Utilities have traditionally been businesses where the customer is the regulator rather than the rate-payer using the service.

Developing a robust deal pipeline and process to evaluate, close and manage investments. Once you’re in early discussions, ask the CVC whether he or she has carry in the fund and whether the venture arm is autonomous.

What You Need To Know Before You Engage With A Cvc

JetBlue Technology Ventures has been an example of a corporate venture capital unit that has been active in investing in the airline and transportation business. In my current role, I’m able to leverage the unique strengths of corporate venture capital to help our portfolio companies advance their missions. While each form of funding has its benefits, below are just a few of the key advantages I’ve seen make corporate venture capitalists strong partners in a startup’s syndicate of investors. These investments are uncoupled from the corporation’s strategy and its operating capabilities and are justified largely by the prospect of financial gains.

This is where large-scale CVCs offer a valuable advantage over traditional venture capital firms. Small startups looking to partner with CVCs should look for companies that will allow them to immediately tap into their massive customer base and where the CVC will serve as the trusted champion that forges those initial introductions. For CVCs that are part of international institutions, these crucial connections aren’t only personal — they’re also global. In addition, if they have access to the CVC’s large team of enterprise salespeople and advocates as part of their extended startup team, startups partnering with CVCs can expect a huge leg up when kicking off new distribution efforts. Microsoft is funding start-up firms that will exploit its architecture and, in so doing, promote the adoption of the Microsoft standard over rival approaches from Sun Microsystems and IBM.

Building It Strategically

Banks, for example, are subject to rules that can restrict the percentage of voting stock they can own. Foreign investors may need to comply with CFIUS regulations if your company provides certain specified technologies. They may not, however, bring them up until late in the process, which could lead to delays. Once again, the way to determine which type of CVC you’re dealing with is to ask the right questions. In the first meeting, ask about their investment process, how investments are made and whether strategic business unit sponsorship is required for a given deal. The answers will tell you whether the CVC falls into Group 1 or 2, and you’ll be in a strong position to then make choices about whether this potential investor is right for you. Kruze Consulting and Goodwin have worked with hundreds of startups through the funding process, including those working with CVCs.

This can be particularly valuable in the first year of operation before flying solo. 500 Startups recently announced the results of the largest corporate venture capital survey of its kind to date. Our presence in the Silicon Valley and tech centers across the U.S., our global coverage and firmwide focus on the technology industry, and our deal work experience provide us deep exposure to deal trends and terms across industries and markets. Because companies can invest their CVCs off the balance sheet , it gives them more scale in research & development (R&D) than just the P&L allows.

Cvc Can Uncover Growth Avenues With Minimal Commitment

But shareholders have plenty of other ways to invest in early-stage companies and can seek such prospective gains on their own, without assistance from a corporate VC program. Companies can justify VC investments if they add value for their shareholders in ways that the shareholders cannot do themselves. But although companies might argue that their core businesses give them superior knowledge of technologies and markets and thus advantages over other investors in identifying start-ups likely to deliver healthy financial returns, evidence of this is scarce. The repercussions of the 2009 economic downturn have been felt throughout the field of corporate venture capital and healthcare has not been completely immune.

For example, a start-up with strong links to the investing company might make use of that company’s manufacturing plants, distribution channels, technology, or brand. It might adopt the investing company’s business practices to build, sell, or service its products. Earlier this year, we organized and led a workshop at the Global Corporate Venturing & Innovation Summit in Monterey, California to discuss best practices for starting and running a corporate venture capital (“CVC”) program. This workshop was based on our extensive collective experience organizing, operating, and advising a significant number of CVC programs across industries and stages of development. We focused on surfacing the various alternatives for structuring a corporate venture practice as well as steps and considerations for implementation and execution of an effective CVC investment program.

What Are The Objectives Of Corporate Venture Capital?

Successful funds develop a comprehensive external messaging plan, including an investment mission and outreach plan to connect with startups and other members of the related ecosystem. Creating and delivering a comprehensive outreach plan will add credibility to the fund, reinforce support from the parent entity as well as drive deal flow and key relationships. Successful funds also strive to be a valuable investor to their portfolio companies, including Board meeting attendance and ongoing advisory roles as well as help with internal and external business development. In my experience, this kind of holistic synergy is what leads to the greatest success for investors and startups alike. In a truly collaborative partnership, the financial aspect is just one part of an ecosystem where each side can actively work to benefit the other.

Similarly, on a day-to-day basis, certain funds assign management from the larger organization, while others either hire an external team or have a combination of internal and external managers to facilitate balanced financial and strategic alignment. The non-technology firms interested in buying stakes includes global advertising agency WPP, oil major Chevron and Dow Chemical, while non-US companies include Korean conglomerate Samsung and Chinese computer maker Legend Holdings. However, a number of US-based technology companies with corporate venture capital units in the 1990s, such as IBM and Microsoft, have concentrated more on other forms of finding external innovation, such as partnering or competitions. Compensation structures are important for attracting, retaining, and motivating an effective investment team. Compensation for corporate venture teams traditionally tie compensation to achievement of ROI objectives or other defined strategic metrics.

For example, because of the scarcity of available funds within the biotech segment of the industry the valuation of private biotech firms is at an all-time low. However, the healthcare industry is seen as somewhat recession-resistant and this has encouraged some investors within the field. As such, while most major corporations with venture capital arms are keeping cash close to home, some of the first positive movement within corporate venture capital as a whole is coming from healthcare.

They will be unlikely to help a corporation cope with disruptive strategies or to identify new opportunities when the company must go beyond its current capabilities to respond to a change in the environment. If a corporation wants to transcend current strategy and processes, it should not rely on driving investments, which are ill suited for these tasks. Combining an assessment of your company’s corporate objective—strategic or financial—with an analysis of the degree of linkage—tight or loose—between your operation and a start-up receiving your funding reveals the four types and purposes of corporate VC investments. Energy Technology VenturesA joint venture involving General Electric, NRG Energy, and ConocoPhillips focused on the development of next-generation energy technologies. Industry – Healthcare segments including medical devices, medical and information technology and services. D. Initial public offering When a company goes public, it is called an initial public offering.

For example, a venture capital may agree to $5 million during this phase, but may pay out the funding in 1/3 installments based on the startup meeting set milestones. Finally, CVCs often look to promote or insist on specific executives to manage the startup at this time. A final thought that we shared and discussed at our workshop is the often-overlooked strategic assets that CVC programs bring to their portfolio companies vis-à-vis their venture capital peers. These include a broader depth of non-financial resources, the ability to be a customer or other collaboration partner, and often a longer investment time horizon.

Connecting Corporates And Innovators Across The Ecosystem

Because Intel’s market position is strong, it can expect to realize most of the increased demand in the market. Intel’s smaller rival AMD, by contrast, could not afford to create demand in a similar fashion because it would not capture enough of the increase to justify its investments. Our framework can help companies evaluate their existing and potential VC investments and determine when and how to use corporate VC as an instrument of strategic growth. A new framework, simple in design but powerful in application, can help identify the investments that will yield a return that matters—strategic growth.