Andrew Gaule of GCV Academy hosted a panel on best practices today at the Global Corporate Venturing Symposium, welcoming questions from the audience about first setting up an investment vehicle and the legal implications of joining a board.
The panel featured Tony Askew, general partner at Reed Elsevier Ventures, the corporate venturing unit of publisher Reed Elsevier; Neil Foster, partner at legal firm Baker Botts; Mark Muth, director at professional services firm PricewaterhouseCoopers; and Jonathan Tudor, venture director of Castrol Innoventures, the corporate venturing arm of industrial lubricant manufacturer Castrol.
The panel discussed the challenges facing a corporation when it first sets up a venturing subsidiary, with Muth pointing out that the unit’s objectives need to be clearly defined in advance.
The parent company also needs to be aware that such a move is a long-term commitment, and that it should start out with a small unit that can be scaled and adapted over time.
Foster meanwhile underlined the importance of having legal processes in place to avoid conflicts of interests and mitigate risks when putting a member on a startup’s advisory board. Such a move may also present challenges to a corporate investor who does not necessarily have the experience of sitting on boards.
Tudor also noted that giving a unit an annual budget will inevitably lead to difficulties, adding that follow-on investments will be hard and exits are too unpredictable to foresee cash flow.
Askew picked up on the practice of writing investments off as assets, which the rest of the panel broadly agreed can be a good or bad idea depending on the company.
According to Askew, it is a dangerous motivation to set up a unit with that structure and it does not do the unit any favours. In fact, he elaborated, it may prevent startups from approaching the corporate as an investor in future.
Finally, the panel also agreed that a portfolio will not be 100% relevant to its corporate parent all of the time, but that each portfolio company will need the continued support of the corporate investor whether or not it is currently strategically valuable.
This will enable the corporate to maintain a good standing in the ecosystem and ensure startups will continue to pitch to them.