- CVCs add value but need multiple strategies
- Recruitment and retention requires professional development
- Network effects and data become vital platforms
It is clear that successful CVCs help – or should do – their parent companies’ research and development and mergers and acquisitions as well as venture building and recruitment strategies.
It is the critical edge to understanding stock returns over a cycle and beyond. Increasingly, therefore, investors are looking at multiple ways to access the innovation and growth.
Just as institutional investors bet on multiple VC funds to build diversification, so corporations are stepping up multiple corporate venturing and innovation strategies from direct investing through in-house and more independent units to VC fund commitments.
Covid-19 accelerated the opportunities for institutional and related strategic investors to come together to back an established management team and also free up the pipeline to source investors.
In a nice summary of some VC industry changes over the past year, VC Semil Shah said: “Throughout 2020, the world of venture capital witnessed its own cauldron of change….
“AngelList unleashed Rolling Funds, a software innovation to abstract away the procedural and administrative complexity of raising and managing small venture capital funds, while empowering limited partners to move in and out of funds like SaaS [software-as-a-service] subscriptions. An evolution on AngelList’s SPV [special purpose vehicle] product, Rolling Funds also empower angel/operators to not only scale up their early-stage investments, but also to create a wider on-ramp for aspiring private investors to get their feet wet.
“[Finally], a new wave of ‘solo capitalists’ emerged as VCs, raising and deploying at scale driven by a single figurehead. Back in 2010, this type of model would be an anomaly and likely not pass institutional committees; fast-forward to 2020, and it’s one of the most intriguing disruptions to the venture capital stack.”
Recruitment and retention of quality managers in turn becomes vital to show consistency and track record. Rather than using CVC as a space to park elderly managers before retirement or rotate staff in and out every few years, the use of professional development training, such as the new online GCV Institute being launched in partnership with BMG Group to complement the existing GCV Academy, will be required. Corporate venturing units have again been ahead of the industry in its diversity and inclusion figures with a majority of the GCV Powerlist, Rising Stars and Emerging Leaders awardees last year coming from non-white, male backgrounds.
Damien Steel, managing partner and global head of ventures at Canada-based pension fund Omers, in his review said: “New VC talent [has been] severely hampered by lack of networking opportunities.
“This is the observation that concerns me the most for our business. Global lockdowns have severely limited the opportunity to bump into someone and hear about something interesting. Associates and analysts at venture funds have been hardest hit by this lack of serendipity. It will probably delay their network building by a year. The smart ones realise they are all in the same boat and are getting very comfortable at cold reach outs to other associates, and to founders, to build networks….
“While I don’t believe many of us will go back to traveling as much anytime soon, I do expect conferences start up again late next year. Personally, I miss face to face networking and look forward to returning to my favourite coffee shops! The focus on seed funds as a natural funnel for deal flow will continue as will the use of data.
Network effects encourages persistence and the 500+ CVCs with more than a decade’s track record are increasingly benefiting while all investors are looking at digital platforms and algorithms to help source entrepreneurs to approach. The GCV Connect powered by Proseeder deal management and connections platform will now include challenges set by corporations to identify startups who can help with their technology needs.
As Steel said: “VCs are leveraging data more than ever. Yes, we might have lost all of those important opportunities to meet founders, hear whispers about hot new companies, meet potential co-investors, but it has led to some innovative thinking in our businesses/ sector and many funds (including ours) are looking to AI [artificial intelligence] to help shortcut insight to the hottest new companies.
“Arguably this has happened far quicker as a result of the pandemic and will certainly endure. Good investors have also turned to data to help bridge the gap in diligence created by an inability to meet founders.”
