In the early months of the covid-19 outbreak, Global Corporate Venturing found that as expected, CVC and other venture capital activity slammed on the brakes at the outset of the pandemic and only gradually picked back up as the crisis continued. Despite the overall hesitancy to commit venture funds in the first half of 2020, however, first-time CVC investments more than doubled over the same period in 2019.
Feeding frenzy
Intrigued by this potential trend, GCV and TDK Ventures conducted additional research and found that it continued for more than a year. Out of a sampling of 1,952 CVCs that made an investment during the first 15 months of the covid-19 pandemic, ending June 30, 2021, more than 900 were making their first foray into CVC investing. That is a nearly 50/50 split between “veterans” and “rookies” participating in covid-era corporate venturing.
This market shift led us to investigate how the influx of new participants will impact the industry. We determined that the rush to develop technologies and applications to deal with the virus offers one explanation for their interest. During the pandemic, enterprises sought profit streams from advances in healthcare, hygiene, communications, productivity enhancements, value chain optimisation, in-home entertainment, alternative energy, and other capabilities that could be applied to existing products and services. This mass disruption is poised to be the driving force behind a new business paradigm as the world emerges from the covid-19 threat.
Unfortunately, newcomers often are not equipped with the best practices or a network of contacts and support. They need professional guidance, such as through the GCV Institute and benchmarking service, to protect themselves from the sharks, sandbars, and other hazards as they navigate the sea of opportunity corporate venture capitalism offers.
Adding to the hazards below the surface, we also found that veteran corporate VCs that have been in the game for five years or more are becoming more professional in their search, conduct, selection and participation in startups. They are improving the services they provide to entrepreneurs and are building their reputations as strong corporate citizens, increasing their value within their corporations.
Sink or swim
On a recent Corporate Venturing Insider Series podcast with 500 Global, Nicolas hosted Claudia Zeisberger, senior affiliate professor of entrepreneurship at INSEAD business school. She noted that the tidal wave of new CVCs likely is the result of corporations having no choice but to enter the field. While some larger and progressive companies can get away without having a CVC arm, most must get involved so they can gain the nimbleness and development insights they need to scale and compete.
She said corporations must emerge from their own niches and become more aware of the developments, opportunities and threats originating from outside.
“At an absolute base minimum, corporates need to observe what is happening in the startup ecosystem – not just startups that are really close to what they are doing. You need to think about what you do in your context in a much more global, broader, wider sense,” she said. “Fortune 2000 companies can benefit from CVC if they lack the knowledge, visibility, business intelligence, or awareness to execute their R&D mission,” Zeisberger said. “We have seen certain industries very quickly disrupted. These have far-ranging effects, even going so far as to influence share price, because investors are starting to put up screens that they didn’t put up even 12 months ago.
A large part of the reason is that companies not only are faced with a more data-driven market and more sophisticated competition. They also must adapt to the internal constraints, workflows, and values. CVC offers the opportunity to, and the challenges of, moving outside this comfort zone and incorporate an entrepreneurial spirit to an established and historically successful business.
How new CVCs can stay afloat
Zeisberger noted that “venture investors need to bring more than just capital to the table”. CVCs that can deliver recipient companies contacts, internal business unit assistance and engineering bandwidth will position themselves more favorably. While they must be careful not to overpromise and underdeliver their non-financial capabilities, these resources can help them establish themselves because “money is not a differentiator anymore”, she said. “In 2021 that is even more true than it was in 2016.”
A good corporate VC must first be a good financial VC – an entity that will take care of entrepreneurs and give them the best chance to succeed. That is the cost of boarding the ship. But they must also develop and judiciously wield a special power that emanates from the corporate mothership. The entrepreneur should work to line up a syndicate of these investors, all with their individual superpowers, like the Avengers, each having a special superpower. With their personal team of smartly assembled Avengers, startups can leverage powerful synergies that will serve them well as they progress through funding rounds and scale their operations for the wider market.
New CVCs can offer these resources as well as established corporate investors. Where they may not be as ready to compete, however, is in their understanding of the industry. There is a reason some older CVCs have survived in the business for decades while many did not. The survivors, the veterans, have built upon their successes, adapted to market shifts, and learned from their mistakes.
It is important that the investment arm build an internal fanbase of managers and frontline teams who benefit from the insights derived from CVC activities. Reach out to comprehend what these partners need. Understanding and smartly responding to internal needs and feedback will lessen the likelihood of missteps along the way. It is difficult to recover from mistakes, and in some circles, CVCs have acquired a reputation as being less adept and professional than their traditional Financial VC counterparts. Education and partnerships with established players and industry insiders can ensure new CVCs do not live up to these negative expectations.
Tossing new CVCs a life jacket
As competition has increased since the covid-19 pandemic, new CVCs have less margin for error. GCV through its Institute and other services serves as a lighthouse, especially equipped to illuminate the path for these newly christened CVC ships, guiding them along the rugged coastline against which many unwary corporate ventures have been dashed.
Gaining the experience new CVCs need without making critical early mistakes that tarnish reputations can prove challenging. It takes 10 years to build a reputation, and 10 minutes to lose it. It is especially difficult as we continue to navigate remote working conditions and socially distant professional relationships. The teams at GCV and TDK Ventures are motivated to help you chart your path, ensuring you do not run aground by failing to delivery on your promises to entrepreneurs. Disruption comes in waves.
While the economy has negotiated the covid-19 tsunami, GCV proved indispensable in helping new CVCs network and learn from their cohorts to vet, implement, and scale the investment decision making and opportunities that accrue positive returns in terms of innovation and transformation that elevate performance. TDK Ventures, on the other hand, shared its journey and how they navigated the rocky sea so far. Reach out to discover how your new CVC enterprise can set sail in an ocean crowded with hedge funds, financial VCs, corporate VCs, and other formidable competition.
