In a recent article, we reviewed the prolific rise of first time CVCs in the venture capitalist investment space since the beginning of the covid-19 pandemic. TDK Ventures and GCV surveyed CVCs across the globe between April 2020 and June 2021, 49% of investors were first timers getting their start during the pandemic. Initially we hypothesised this would of course be due to the changing demands of the pandemic itself, however, digging deeper through conversations with Professor Claudia Zeisberger of INSEAD Business school, there is something much deeper at play.
On a more fundamental level, this huge influx of new participants in the CVC space has stemmed from many corporations collectively recognising the critical need for renewed agility and awareness in today’s dynamically changing world. Circumstances, such as covid-19, as well as new innovations and breakthroughs can rapidly disrupt entire business sectors faster than ever before, starting altogether new megatrends.
Instead of flexing business practices temporarily just for the pandemic however, corporations are instead learning from the crisis and looking to make permanent changes in practice to ensure stability through future instabilities. Thought leaders are realising the key to agility and awareness is to be on forefront of the state-of-the-art, identifying new technologies and even nurturing and shaping their path – turning potential challenges or even threats into new opportunities and partnerships.
The scales have tipped
The same GCV Institute report was recently updated extending the data to include up to March 2022. Results show the 50/50 balance of the scale has now tipped and 52% of CVC investors were first timers since the beginning of the covid-19 pandemic (2,092 of 4,062 surveyed). That is right, the trend continues to persist even more corporations are catching on and beginning to get involved in CVC investing to keep aware of state-of-the-art innovations in their respective industries.
This suggests that more businesses are seeing that the new normal previously mentioned is not going anywhere and that new business practices are indeed warranted. Similar to the concept of diffusion of innovation popularised by Everett Rogers, we may be witnessing the idea of having a corporate venture capital arm catch on as participation extends from the more innovative and risk accepting entities, to more mainstream popularity.
Two immediate repercussions to consider however, are what this means for first-time CVCs as they break into a dynamically evolving space, and what this means for entrepreneurs as potential partnerships with a CVC becomes more and more probable.
Developing CVC superpowers
For first time CVCs, such a drastic uptick in participation bottom line means competition and with it (1) the need to distinguish themselves from other CVCs both new and veteran, and (2) the necessity to operate with a very low margin for error. They must decide early what kind of CVC they want to be, and in a sense develop the “superpowers” they seek to harness to help their portfolio companies along the way.
Suffice it to say, being a financer and investor is no longer adequate in the CVC space – rather the bare minimum. A CVC must also be able to provide equal or better value in terms of network, technical expertise, and market prowess. While doing so they must also stay true to a core purpose – whether that be to secure information and even acquisitions for the corporate parent, maximise partnerships with their internal business units, or to maximise financial return while gaining market critical knowledge (closer to a more traditional VC).
Entrepreneur’s choice
What this means for an entrepreneur is an ever-growing diverse selection of potential partners and collaborators to choose from as the right opportunities present themselves. This is both a blessing for a budding startup as well as a very critical responsibility which warrants significant thought and education so an optimal and intentional choice may be made. A proper match between a startup and a given CVC depends very much on the startup’s own end goals along with the chosen priorities of the CVC in question.
The path forward
As the space continues to evolve, only time will tell which CVCs will be able to endure and become veterans in their own right and which will struggle to succeed. At TDK Ventures we will continue sharing our own journey and the lessons we have learned along the way to find our CVC superpowers. Whether you are a first-timer CVC, a veteran with knowledge you want to share, or an entrepreneur who wants to understand what this means for you – reach out and we can share tips, advice, lessons learned, and together we can grow and nurture the community as a whole, which is a win-win for everyone.