Naturally, the first thought of the community has been to the human aspects of people falling ill, or struggling with the isolation and the economic impact that could see massive amounts of global gross domestic product affected and an estimated $4.5 trillion bailout. As one forum participant said: “Our guys believe in a 50% of GDP wipeout scenario. In this case the question is if the rebound happens in a year or in 15 years.”
But it also brought out the corporate venturing industry’s desire to see the opportunities in the challenges across three main areas.
First, organisation. Experienced corporations with established venture vehicles more than a decade old can still rely on external validation of their units, but also have a past playbook indicating the need to continue their commitments.
Creating opportunity funds that third parties could commit to can become possible given that some pension funds are now saying this is the time to increase allocations to venture capital and private equity.
In return, supporting a parent company that might be going through unprecedented supply and demand shocks requires CVCs thinking of their tactical, short-term needs while still being aware of longer-term strategic priorities. Corporate venturing through bringing startups and open innovation into an organisation matrix where people have recently moved from a fixed to a growth mindset can be transformational.
As one said: “We are actually seeing accelerated engagement by business units. I had as many business unit [BU] calls in the last couple of weeks as I have over the past three months. BUs are looking for ventures teams to lead on the innovation front and leverage startups to accelerate some of our technology initiatives. Tons of proactive reach-outs.”
Second, dealflow and portfolio management. Updating portfolio financing and cashflow plans against those made at the start of the year can help validate why portfolio companies can be supported, with CVCs sharing their portfolio company support documents. With the end of the first quarter and the need to mark to market, the likely valuation decline across larger portfolios will become clear.
As another leader said: “To land the message with IC [investment committee] that follow-ons, while not contractually committed, are reputationally committed. So, while new investments may become more challenged, follow-ons are locked in.”
Others were less certain, with CVC units expected to take their share of reduced budgets. “I would not be able to look my board in the eye if I said we should be immune,” one said.
Once portfolio companies have been triaged, corporate venturers can also help with their general survival or expansion by offering to be customers or suppliers, or managing their human resources.
Looking back at past downturns indicated independent VCs might turn more to earlier-stage deals, making growth-stage investments potentially more challenging, one said. Deal volumes will decline as syndicates prove harder to form, even if the top 20% of CVCs – those responsible for 80% of activity – remain cash rich in the main. Already, the overall venture industry has broadly halved its dealflow to about 1,250 deals in March, according to Pitchbook.
Third, future issues. The openness among governments and stakeholders across all parts of the economy in seeing innovation as part of the solution to the Coronavirus opens up corporate venturing to be a figurehead and guide out for others in the crisis, and to limit other outbreaks likely to come as volatility and sustainability become increasingly important watchwords.
As one said: “Who would have thought that the EU [European Union] would become an investor of this scale? Very interesting times.”
