Jaidev Shergill, senior vice-president of financial services firm Capital One’s corporate venturing arm, Capital One Ventures, and Scott Lenet, founder and president of venture capital firm Touchdown Ventures, spoke at the Global Corporate Venturing Symposium today about mitigating risk while ensuring returns.
GCV editor-in-chief James Mawson moderated the panel, introducing the session with a video of two buck antelopes fighting for dominance over a doe before the tussle is broken up by the arrival of a predatory lion, representing corporates rivalling each other while being unaware of external forces, be they paradigm-changing entrepreneurs or macroeconomic shocks.
Other external issues facing investors include a changing regulatory environment that needs to take into account factors such as the European Union’s privacy and data protection-focused General Data Protection Regulation.
Trade rules are also shifting, and other risk factors are also lengthening in timeframe making venture investments trickier. That can however be an opportunity for CVC leaders, since as risk factors increase, so do their responsibilities to act as scouts for their parent companies.
Mawson polled the audience’s expectations of a downturn and noted a more positive attitude than at January’s GCV Summit in Monterey. Lenet, who helps set up and run venture capital units for corporate clients, quipped: “Game of Thrones is over, perhaps winter is no longer coming”.
Shergill was more circumspect, stating that no one knows if there will be a downturn in the next year. He is mitigating a potential downturn by entrenching partnerships with startups, a strategy Lenet agreed with, calling it a “less risky kind of buy” that does well internally.
For Lenet, it is important to have a plan in place for a downturn, but traditional VCs tend to “be excited for a downturn” because it leads to less competition and more committed startups.
Keeping corporate executives on board is a key means of keeping internal risk low. When starting out, Shergill says, you have to be strategic, creating a bigger pie for all rather than smaller pies within the company while making good financial bets: the last thing you want to be is “an expensive research project”.
Shergill started Capital One’s unit by making late-stage bets at series C and D stage, which meant there would be lower returns, but that they would be faster with less risk involved.
Lenet riffed off that point, saying that while traditional VCs focus on early-stage deals earlier in a fund lifecycle to ensure returns later on, CVCs have to do the opposite: get early wins to ensure that the parent stays on board.
The speakers concluded by agreeing that actively managing your portfolio was another way to approach risk. Lenet said it depends on finances, being proactive on going back to your portfolios for reinvestment, rather than waiting on them to come to you with empty coffers.
Shergill’s team meanwhile try to quantify future investments in portfolio companies by looking beyond a dollar value while still keeping financial and strategic return in mind. His team try to look at portfolio companies for the next three years, though he said: “Beyond that, we just do not know”.