If you want to join the popular crowd in the venture capital world, just say that corporate venture capital players (CVCs) are slow, cumbersome and inefficient, that they are not really investors, but corporate drones. Carrying these opinions might make you seem ok, but it does not necessarily make you right.
VC investor, it is possible for you to find a great partner from the corporate side. CVC investor, there is no need to be ashamed of your identity, you have many qualities to be proud of.
Let us break some myths and find a common ground together. This post is based on discussions at the Global Corporate Venturing Symposium 2017, where several seasoned VC and CVC players painted a picture of an ideal venture partnership.
And a note on the vocabulary – a company in this article is a funds-seeking startup or scaleup.
Myth one – CVCs are slow
Wrong. Nowadays CVCs operate with a mindset of six to eight weeks, same standard as VCs. During the investment negotiations, the VC partner and the company should check the maturity of the potential CVC partner, for example, how it operates and how fast. One of the reasons VCs cringe at working with CVCs is the arbitrary nature of the decision-making, not the pace. VCs can wait for more than two or three months, if they trust the internal decision-making process of the CVC. It is a nightmare when the decision gets shot down by the CVC’s top management due to overly strict due diligence after a lengthy negotiation, losing valuable time for the VC and especially the company.
Myth two – VCs and CVCs have completely different goals
Wrong. Both parties want growth. Like any partnership, expectation management and open communication work wonders before and after the investment. For example, the VC and the CVC can discuss the possibility of the company becoming a target of an acquisition before the investment decision. Yes, CVCs are looking for a product fit while VCs are looking for an exit. Even with these angles, the VC and the CVC can set up game rules, work out the exit timing and guide the company together.
Myth three – VCs and CVCs are like oil and water
Wrong. In the best cases, a VC investor brings the expertise of valuation while the CVC opens access to markets and tech expertise – both parties use each other for validation. The biggest rows happen after the investment if the company does not hit the milestones. Deal with the situation together – don’t waste time with blame.
And here is the one myth that proved to be true. Having a new CVC player in the town is like watching Bambi learning its first steps – everybody is watching to see whether it will make it through the first years without tumbling. An abundance of advice was given at the symposium to CVC newbies from both VCs and CVCs;
- Have a clear focus.
- xecute a simple investment process internally, for example, through an investment committee or a light internal sponsoring.
- Gain 110% support from the CEO and top management.
- Recruit a team with backgrounds in venture capital, business and technology.
- Give the team incentives to stick around and get better at their jobs.
- An independent chairman is a nice touch.
- Be gentle yet firm with companies before the investment decision. Don’t flash the card of first right of refusal – not cool.
- Don’t look for a perfect strategic fit with a cheap price tag – you just cannot have it all.
Find your harmony
VCs and CVCs can gain everything from collaborating, if they play the game right. In the end, both players want to be part of the success of companies with star quality. So after the investment is made, sing in harmony, because only by working together can VCs and CVCs nurture the company and bring it to its maximum potential.
This is an edited version of an article first published on LinkedIn. It is sourced from sessions at the Global Corporate Venture Symposium 2017 and the discussions with the CVC and VC representatives from Accenture, Allianz Ventures, Denso, DFJ, Esmerald Technology Venture, Henkel, Imec.xpand, Innovestor, Pangaea Ventures, Randstad Innovation Fund, SoftBank, Silicon Valley Bank, Telefónica, Tsing Capital and others. Thank you all and especially the organiser.