Palo Alto – May 12, 2020 – Corporate Venturing is growing. Today, over 75 of the Fortune 100 have a Corporate Venturing arm and these entities participate in over 30% of Venture deals. The total number of Corporate Venture investors increased by 300% between 2011 and 2016.
Despite this growth, Corporate Venturing remains hard to get right because of the need to be good at 2 difficult things.
1) Attractive Financial Returns – Firstly, Corporate Venture funds must deliver attractive returns, above and beyond the cost of capital of their parent company. It should be obvious that the fund is creating and not destroying shareholder value. Demonstrable financial success also increases the likelihood that the Corporate Venture fund outlives the reign of the current Corporate CFO.
2) Strategic Value – Secondly, Corporate Venture funds should deliver strategic value to one or more of the businesses, in practical terms this means there must be collaboration between the start-ups, in which the Corporate Venture fund is invested, and the Corporate businesses the fund represents. The collaboration could involve R&D, operations, go-to-market, business model, or some combination thereof. The collaboration should be bi-directional in that it should help both the start-up and the business. Most start-ups seek-out or accept funding from a strategic investor (e.g. a Corporate Venture fund) because they want something more than money, they want and expect some other kind of assistance. Corporates, on the other hand, are not financial institutional investors, they invest in start-ups to gain learning and experience in new markets, technologies, and business models. The external perspective agility and entrepreneurship found within start-ups are often valuable and difficult to replicate in-side large Corporations.
How to achieve Collaboration Between the Start-up and the Corporates Businesses?
Collaboration does not happen without orchestration and facilitation by the Corporate Venturing team. Firstly, it should be agreed, before the investment is closed, what the goals of the collaboration are, and broadly how these should be achieved. Secondly, it should be agreed who in the Corporate’s business will be main contacts to drive the collaboration at least on a weekly basis, this is important as start-ups should not be expected to self-navigate Corporates with tens of thousands of people.
Independent Yet Well Connected
To conclude: Corporate Ventures teams be good at vanilla VC investing. They must have a degree of independence to help ensure that they make financially sound investments and that they can do so with the required speed. In addition, Corporate Venturing teams must be well respected by and networked with the Corporate businesses seeking to benefit from start-ups. And with that, I open up the floor, with the question as to which of these team attributes is hardest to obtain?
To learn more please contact:
Woodside Capital Partners International LLC