As the significant growth in the number and scope of corporate venture investment programs around the world continues, the opportunities, and the necessities, for venture capital funds to collaborate with multinationals and other corporate investors as syndicate partners will also increase. Parallel to this growth in investment syndicate opportunities, in recent years we have also seen the startup and venture capital community embrace corporate venturing investors as trusted members of the venture and innovation ecosystem as never before, further fuelling this acceleration in opportunities.
Building bridges to create successful CVC and VC investment syndicate partnerships was the theme of a recent panel discussion at the Shift: Accelerating Corporate and Venture Partnerships conference hosted by US trade body the National Venture Capital Association and Global Corporate Venturing in New York.
At the conference, I had the opportunity to moderate a panel of industry leaders representing a broad spectrum of investors, from traditional venture capitalists to strategic investors from large corporations. In a thoughtful and informative discussion with Rachel Lam, senior vice-president and group managing director at Time Warner Investments; Karin Klein, founding partner at Bloomberg Beta; John Doherty, senior vice-president of corporate development and chief investment officer of Verizon Ventures; and Warren Lee, general partner at Canaan Partners; we explored how successful CVC-VC partnerships are formed, how those partnerships evolve over the lifecycle of a portfolio company, and the different strategies for ensuring that those investment partnerships are optimised to support the growth and success of innovative businesses.
The discussion began with observations on the significant strides that key players throughout the CVC community have made in recent years to establish themselves as sophisticated, trusted and influential players in the venture ecosystem. Although entrepreneurs, startups and traditional venture capitalists were in the past more sceptical about the role that larger companies can play as value-added investment partners, the panellists agreed that the CVC community had evolved significantly and that the CVCs that had adopted collaborative best practices were able to gain access to a broader range of investment opportunities and were contributing in valuable ways to the growth and success of innovative venture-backed businesses.
Among other insightful points made during our discussion, the panellists highlighted the following best practices as key takeaways for corporate investors seeking to proactively engage in the venture ecosystem:
• Be well-networked in the venture and entrepreneurial community in which you are investing and build a reputation as a supportive and collaborative investor.
• Adopt venture terms that are market in the industry and avoid, to the greatest extent possible, negotiating for special rights that might hinder the growth and success of a portfolio company.
• Align your organisation to move at venture speed on investment transactions and decision-making processes during the lifecycle of a portfolio company.
• Adopt a collaborative approach to negotiating and completing investment transactions and to overseeing your portfolio companies.
• Seek to provide valuable insight and support to your portfolio companies from the significant resources and market position of your parent company and its affiliates.
• Be transparent about conflicts of interest between your portfolio companies and your parent company and its affiliates, including conflicts that may arise when a CVC affiliate is entering into a commercial relationship with a portfolio company or is actively engaged in an exit transaction with a portfolio company, and be proactive in managing such conflicts or, when appropriate, abstaining from discussions and decisions in which such conflicts arise.
It is clear that CVC programs are a growing and increasingly influential part of the venture capital ecosystem. The convergence of technology and the broader economy has been a central theme in the incredible growth in CVC programs over the past decade, with corporate venture investment’s rise to significance fuelled by the need for larger institutions to constantly adapt in an environment defined by disruption and rapid innovation.
This convergence trend will continue to accelerate in the years to come, requiring corporate investors to continue to build and strengthen relationships and trust in the startup and VC community and the resulting connectivity and understanding among all such participants will enhance growth and innovation for the entire community.