If you want to join the popular crowd in the venture capital world, just say that that corporate venture capital players (CVCs) are slow, cumbersome and inefficient. That they aren’t really investors, but corporate drones. Carrying these opinions might make you seem ok, but it doesn’t make you necessary right.
VC investor, it is possible for you to find a great partner from the corporate side.
CVC investor, there is no need to be ashamed of your identity, you have many qualities to be proud of.
Let’s break some myths and find a common ground together. This post is based on the discussions at the Global Corporate Venturing Symposium 2017, where several seasoned VC and CVC players painted a picture of an ideal venture partnership.
And a note of the vocabulary: company = funding seeking startup or scaleup.
MYTH ONE – CVCs are slow
Wrong. Nowadays CVCs operate with the mind-set of 6-8 weeks, same standard as VCs. During the investment negotiations VC partner and the company should check the maturity of the potential CVC partner, e.g. how they operate and how fast. One of the reasons VCs cringe at working with CVCs is the arbitrary nature of the decision-making, not the pace. VCs can wait for more than 2-3 months, if they trust the internal decision-making process of the CVC. It is a nightmare when the decision gets shot down by CVC’s top management due to an overly strict due diligence after a lengthy negotiation, losing valuable time for the VC and especially the company.
MYTH TWO – VCs and CVCs have completely different goals
Wrong. Both parties want growth. Like any partnership, expectation management and open communication work wonders before AND after the investment. For example, VC and CVC can discuss the possibility of the company becoming a target or an acquisition before the investment decision. Yes, CVCs are looking for a product fit while VCs are looking for an exit. Even with these angles VC and CVC can set up game rules, work out the exit timing and guide the company together.
MYTH THREE – VCs and CVCs are like oil and water.
Wrong. In the best cases, a VC investor brings the expertise of valuation while CVC opens access to markets and tech expertise; both parties use each other for validation. The biggest rows happen after the investment if the company doesn’t hit the milestones. Deal with the situation together, don’t waste time in blame.
And here is the one myth that proved to be true.
TRUE – a big eye roll to newbie CVCs
Having a new CVC player in the town is like watching Bambi learning its first steps, everybody is eyeing whether it will make it through the first years without tumbling. Abundant of advices were given to the CVC newbies from both VCs and CVCs;
- Have a clear focus.
- Execute a simple investment process internally, e.g. through an investment committee or a light internal sponsoring.
- Gain 110% support from CEO and the top management.
- Recruit a team with backgrounds in venture capital, business and technology.
- Give the team incentives to stick around and get better at their jobs.
- Independent chairman is a nice touch.
- Be gentle yet firm with companies before the investment decision; don’t flash the card of first right of refusal, not cool.
- Don’t look for a perfect strategic fit with a cheap price tag, you just cannot have it all.
FIND YOUR HARMONY
There is a difference whether a CVC partner is doing their job properly versus claiming that CVCs are not equals in the venture capital world. VCs and CVCs can gain everything from collaborating together, if they play the game right. In the end, both players want to be part of the success of companies with star quality. So after the investment is made, sing in harmony, because only working together VCs and CVCs can nurture the company to its maximum potential.
This post is sourced from the sessions at the Global Corporate Venture Symposium 2017 and the discussions with the CVC and VC representatives from Accenture, Allianz Ventures, DENSO, DFJ, Esmerald Technology Venture, Henkel, Imec.xpand, Innovestor, Pangaea Ventures, Randstad Innovation Fund, Softbank, SVB, Telefonica, Tsing Capital etc. Thank you all and especially the organiser!