Corporate Venturing: When Innovation and Investment Collide
The biggest players include those like Salesforce Ventures, Comcast Ventures, Qualcomm Ventures, Google Ventures, and Intel Capital, among others. What are they doing, why are they doing it, and how does it (or will it) impact the overall venture ecosystem?
We spent some time poring over friend and colleague Andrew Roman’s recent book, Masters of Corporate Venture Capital: Collective Wisdom from 50 VCs Best Practices for Corporate Venturing How to Access Startup Innovation & How to Get Funded to find out the why behind the trend, and have put some of our own thoughts together for you here:
What is Corporate Venture Capital (CVC)?
Corporate Venture Capital, or “corporate venturing” as it’s often called refers to large corporations making strategic and systematic investments in external startups. You will recognize it as a hot topic with big league global publications like Forbes and HBR, and the trend is on the rise. Since the 1990s, when the global buzz about corporate venturing first emerged, we’ve learned that the most successful examples of this occur when the startup’s business strategy and goals are directly – or at least tangentially – shared by the business unit making the investment.
(For more detail on successful strategic alignment between corporates and startups, check out some of the case studies Andrew lays out in the book. Pro tip: take good notes on the chapter about Salesforce.)
By the Numbers
In 2015 the scope of corporate ventures was $28.4B globally. Today, CVC in the United States alone represents almost $24B. Across the entire investment landscape, more than 20% of all Venture Capital financings include at least one CVC. That represents a global footprint of about $155B (as of latest reports from 2017). What does this mean for the investment ecosystem at large?
What CVC Means for Entrepreneurs
Early Growth Financial Services has had the opportunity to work with a variety of VCs and micro venture capitalists, and the most critical piece of advice we can offer is to make sure there is strategic alignment between the entity seeking funding and the individual or fund providing the capital. What are the startup’s goals; what are the corporate’s goals, and do they complement one another? Before you get involved with CVC, it’s also important to decide if acquisition is part of the business plan. If it’s not, CVC may not be practical. If acquisition is the ultimate goal, you have some things to think about. There are advantages and disadvantages across the board.
The Pros of Corporate Venturing
Corporate venturing can be highly beneficial to entrepreneurs and startups: it’s a chance to glean deeper business intelligence and learn from the experiences of industry experts. It also paves the way for potential new partnerships and access to greater customer base (via the corporate) as well as providing additional sales and marketing channels for the end product or service. In his book, Andrew urges corporations to establish their own CVC arms as a vehicle for accessing external innovation. It’s important to learn how to bring that critical business intelligence back into the organization through VC investing, partnerships, and M&A opportunities. There are some possible downsides to CVC for corporate entities that entrepreneurs should be aware of as well.
The Cons of Corporate Venturing
As with any investment venture there are risks, particularly if there is little or no strategic alignment between the startup and corporate entity. Something as simple as the CVC’s name can impact market perception, especially if the startup is interested in seeking funding from corporate competitors. Consider your acquisition goals – if they don’t line up with the corporate’s plans, you may be in trouble down the road. And, of course, a lack of experience can be detrimental. We see a lot of greenhorn VCs involved in the CVC space and would advise that understanding the market and the overall investment landscape is key. Do your research, consult with experts, and think it through before taking the leap.