We are going to focus on CVC investments in companies that directly increase demand for their own products and services. What is interesting, though, is the more modern combination of corporate venture capital with micro VC. The rise of micro corporate venture capital and “development funds” are an example of how companies can kickstart the growth of an ecosystem around their platforms.
In December 2015, Slack, the workplace messaging platform, announced the Slack Fund, an $80m corporate venture fund raised in collaboration with Accel, Index Ventures, Spark Capital, Kleiner Perkins Caufield & Byers, Andreessen Horowitz, and Social Capital. Slack’s fund is a textbook example of CVC directly driving demand for the company’s platform.
The fund’s website stipulates that prospective companies have “a product built for Slack customers or built to support developers using the Slack application program interface”. Investment prospects also need to have a committed lead investor, because Slack Fund is not in the business of taking board seats.
April Underwood, a former Twitter executive who joined Slack to form its partnership strategy, told Fortune: “We want to help more developers make a bet on the Slack platform. We want them to have access to the capital they need.” In mid-July, Slack Fund announced its first crop of portfolio companies.
Amazon announced a $100m fund to invest in companies that build on the Alexa platform, with particular interest in hardware products and companies that make “contributions to the science behind voice technology, including text to speech, natural language understanding, automatic speech recognition, artificial intelligence and hardware component design”. To date, the Alexa Fund has invested in some 16 companies, including “conversational understanding as a service” startup Kitt.ai, smart garage door producer Garagio, and Ecobee, which makes smart wifi thermostats.
Developer funds are also common in the gaming and virtual reality (VR) industry. In April, HTC announced ViveX, a $100m fund and accelerator program around its Vive VR platform. The company plans to run its accelerator program in Beijing, Taipei and San Francisco, and intends to target developer-led companies to “cultivate the VR industry” and development of the VR ecosystem.
At the Electronic Entertainment Expo this year, gaming equipment manufacturer Razer announced a special-purpose $5m developer fund to support content developers around the open source virtual reality platform it co-founded. So far, the fund has supported 15 games and intends to support more from the hundreds of submissions it has received.
Everyone wins
It is hard to see how these investment vehicles are not mutually beneficial for corporate benefactors and the startups they fund. If the startup succeeds, the corporation gets to capture the returns on their investment while simultaneously benefiting from the added utility the startup’s product or service brings to its platform. If the startup fails to thrive, the goodwill created by the corporate investment can be leveraged into an “acquihire.”
The advent of developer funds to drive the growth of an ecosystem around software platforms is not necessarily new. Back in the day, Microsoft earmarked $1bn to invest in companies that used its .net framework. But today, it seems like development funds are growing in number as companies incentivise engineers to build products and services on top of their platforms. It is good for companies, and it is great for engineers.