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The key feature of corporate venture investors is that they, for the most part, invest in startups to gain strategic benefits — access to new technologies and markets, the potential to find new suppliers and partners.
But these strategic gains do not materialise simply by making an investment. As Adria Kinnier, vice president of portfolio success at In-Q-Tel, puts it: “To drive the value of these investments you can’t just set the investment in motion and pray.” You need people who will act as the connectors between the portfolio startup and the parent company business units, helping to find collaboration opportunities.
“We make sure things don’t fall. Our role is to evangelise the startup and educate the business unit so that there is engagement,” says Swati Dasgupta, director of venture acceleration at National Grid Partners.
Some 40% of corporate venture units now have a business development or platform team, according to the latest GCV Keystone annual survey. Some 80% of those teams offer startups access to their parent’s partners, networks and technical resources to help them be successful.
Read more: It’s not just the money: the growing importance of VC platform jobs
In-Q-Tel, the investment arm for US national security agencies, and National Grid Partners, the CVC unit for the UK electricity utility, were early adopters of this trend, setting up business development functions from day one. Kinnier and Dasgupta joined our recent webinar on CVC parent-portfolio partnering to share their learnings from running these operations.
This is what they shared.
1. Set clear targets
National Grid Partners aims to make sure 80% of its portfolio startups are engaged with the parent corporation. This could be a proof of concept, a pilot project or a full engagement.
“We would never invest in something that can’t go from pathfinding into engagement,” says Dasgupta. Ideally this in within a two-year time-frame.
“Oftentimes we’re thinking about [strategic engagement] many months before we decide on the investment. We have to be sure that we have a plan in place,” she says.
2. Make sure you are very well plugged into the internal politics of the parent corporation
The National Grid Partners platform team is organised by business unit. Each unit has a platform team member that not only works hard to understand the pain points and business needs of that unit but builds networks of startup champions among the staff.
One of the learnings Dasgupta shares is that you need to understand the broad picture of company strategy to make sure a project doesn’t hit roadblocks.
“In the beginning we didn’t understand the complexity or political processes inside the company,” she says. They invested in a couple of startups that had support from a business unit but which ultimately didn’t fit with the broader digital transformation or standardisation strategy. “We didn’t see the complexity of that and so it took much longer for those startups to get engaged. We shifted to really try to understand those roadblocks and areas where we can get stuck.”
3. You can still make some longer-term investments
Both In-Q-Tel and National Grid Partners leave some space for investing in early-stage technologies that aren’t yet ready for use in the company or with an intelligence agency.
“We have two types of investments. One is in actual technology modification efforts and then the other is seed stage investments in an area that we believe is important or will be very important for the intelligence community in the next five to 10 years,” says Kinnier. “We make the investment out of our proceeds or some of the revenue that’s been generated from our prior investments.”
Dasgupta, too, will look at more disruptive “Horizon 3” investments that may take longer for the corporation to start working with. The National Grid Partners team invested in an AI company some years ago, because they knew this would become an important area for utilities in the long term.
“It was our hypothesis that this would be needed because we knew from other sectors that AI was going to be needed. We invested with a high level of support but not a detailed engagement plan,” says Dasgupta.
4. Have some formal documentation of the commitment the corporate is making to support the startup
In-Q-Tel, for example, draws up a statement of work between itself and the startup which guides how they will collaborate, says Kinnier.
5. There is a wide variety of ways to measure the success of a business development unit
In-Q-Tel measures first how many pilot projects happen between the portfolio startups and government agencies, and then how many go on to adopt the technology for continued use. Over the past 25 years it has been in existence, the unit has averaged a 40% adoption rate.
Kinnier’s team also looks at the impact its startups make to the mission of the agencies it works with — did it save time, or cost, for example.
This is the hardest part to measure, Kinnier says. “Ultimately, it comes down to us maintaining very close ties with the end users of these technologies, to gather from them over time what the impacts of these investments are. Internally these stories are of great value, and are the strongest examples of why our model is sound.”
Dasgupta says that in addition to targets on engagements and operational efficiency gains, the team’s performance is rated annually by both top executives and by startup executives. This rating impacts directly on the team’s compensation.
6. Give your business development team high status
If you want the platform function to be effective, you need to make sure they have parity of esteem with the investment side, says Dasgupta.
“Elevate the team to the level of the investors. Much like you have investment partners, you can have platform partners or business development partners. We’ve done that,” says Dasgupta. She says this structure has become a point of differentiation for National Grid Partners. “The business development part of it is equally if not more important than the investment part. That shows in our culture.”
Watch the full webinar replay here:
This webinar is part of GCV’s The Next Wave series of webinars. We run a webinar on the second Wednesday or every month, alternating between advice for CVC practitioners and deep dives into specific investment areas. Our next webinar will be Generative AI – How investors can navigate the regulatory hurdles on February 7, 2024. Register here to secure your place.
