The relationship between corporates and venture firms has long been frayed by mutual distrust. The venture community often seems to treat corporates with a high-handed arrogance, at the same time as raising the justifiable concern that some corporate venturing units may simply be a passing strategic whim of a chief executive. By turn, corporates are wary of investing in venture firms because they have found it difficult to get general partners to meet their strategic needs, and in a fair number of cases, even their financial goals.
Yet the venture community nowadays is far more welcoming of corporates. This is largely self-interested behaviour – corporates have capital which could be invested in venture firms’ funds and also can provide technical expertise for complex deals, which may help de-risk portfolio companies. It is a sign of weakness, reflecting firms’ worries about doing well on their deals and fears about their ability to raise a fund amid a highly difficult economic environment. Yet corporates should seize this opportunity to strengthen their standing in the venture world, and use it to become insiders of the venture world. If more corporates can occupy a seat at the top table of Silicon Valley dealmakers, demonstrating returns and staying power, the reputation of corporate venturing will go from being that of a curious niche to a respected pursuit.
At this time of fundraising drought corporates are arguably provided with a compelling contrarian opportunity. Interesting independent firms, which may have delivered mediocre returns due to the poor market environment, should also be sought out and supported, as help in an hour of need is unlikely to be forgotten. It is probably true, as is often alleged, there are too many venture firms, yet it is also the case that some very interesting minds have been caught out by the size and scale of the present recession.
It is heartening to see corporates are making steps to get more involved in the venture community. On Friday Stephen Socolof, who was recently announced as the incoming chairman of the National Venture Capital Association’s Corporate Venture Group Advisory Board, outlined how the trade body has made it a priority to improve relationships with corporates. Socolof pointed to how US-based computer company IBM’s Claudia Fan Munce recently became the NVCA’s first ever corporate venturing board member.
There has been an increase from about 40 corporate members of the NVCA to 70 in the last year. Yet given Global Corporate Venturing tracks about 550 corporate venturing units, Socolof said there was clearly room for the NVCA to strengthen its corporate membership.
Socolof added: "My role is really a great opportunity in terms of timing. We have seen such an increase of corporate VCs in the community so it is a great time for me to be in this role. We have been a small tight group, without too much interaction with the broader NVCA. Yet with the increased number and role of the corporates, the NVCA has embraced corporates in a new way. We are talking about how we can add value together. There is an opportunity for increasing mutual value for the NVCA, corporate VCs and traditional VCs. We can create a lot more alignment of interest there."
He added his role would be focused on improving the wider venture community’s education about what corporate venture firms did, providing networking opportunities, and also getting corporates more involved in the public affairs policy campaigning of the NVCA.
Socolof said: "Corporates to a large degree haven’t appreciated the breadth of the public policy agenda of the NVCA, yet it has made great strides in recent years." He pointed to areas such as a recent US act to help funding of start-ups and the NVCA’s work on reforms for the FDA system. He said many items on the traditional venture public affairs agenda were of interest to corporates and he was keen to help shape how this worked.
Corporate venturing executives should see the invitation from private equity trade bodies to participate more as a great opportunity to cement their companies into all investment decisions. Now financial resources to invest in venture are scarce is a time where corporates wield great clout. Use it well, as it may only be a fleeting chance to make your mark.