

Everything Your Startup Needs To Know About Corporate Venture Capital - Baldwinner
http://news.partnered.com/post/83638669432/everything-your-startup-needs-to-know-about-corporate

======
asanwal
I used to work in corporate VC and now I'm co-founder of company that tracks
their investments.

Some thoughts:

Corporate VCs are an important part of the ecosystem [1] now as traditional
VCs have less money so corporates are helping to fill the gap. Like it or not,
if fundraising, they may be in your future.

In good news, on average, they write larger checks [2] and may be less
valuation sensitive (esp since they're often focused on a double-bottom line,
i.e. returns + strategic benefit).

Things I'd look for:

* What's the quality of their investment syndicate partners? Do they invest frequently with smart money VCs?

* How long have they been doing it? Some corp VCs are fairweather VCs, i.e., they jump in when the market is hot but then bail. This can also be good as these guys tend to overpay

* How painful was it to get the deal done? If the process to get investment was super painful, realizing the "strategic benefits" will probably be harder.

* Have they had successful exits? Success persists in VC. If you're good, you tend to stay good (and vice versa)

With regards to being good or bad, they are a heterogeneous group. So just
like with most things in life (VCs, angels, plumbers, recruiters), there are
good ones and bad ones.

[1] [http://www.cbinsights.com/blog/tech-corporate-venture-
capita...](http://www.cbinsights.com/blog/tech-corporate-venture-capital-
balance-sheet)

[2] [http://www.cbinsights.com/blog/corporate-venture-
capital-q3-...](http://www.cbinsights.com/blog/corporate-venture-
capital-q3-2013)

------
tptacek
There's also an M&A signaling issue with corporate VC. If, I don't know,
Microsoft invests in you, potential partners and acquirers might deal with you
as if Microsoft has a first-refusal right for your company.

~~~
napoleond
_> potential partners and acquirers might deal with you as if Microsoft has a
first-refusal right for your company._

Would they be correct? ie. does accepting corporate VC investment usually
require relinquishing certain rights to the parent company? It seems like a
reasonable assumption but a cursory Googling didn't turn up anything
meaningful.

~~~
tptacek
It depends on the corporation investing, I suppose. I brought it up because I
saw it happen, but the corporation in question was active in M&A, too.

~~~
nlwhittemore
This is definitely a concern. In the case of Google Ventures, there have been
4 acquisitions by Google of GV portfolio companies since 2009 and the partners
of GV recuse themselves from those convos:
[http://techcrunch.com/2014/01/14/double-google-all-the-
way/](http://techcrunch.com/2014/01/14/double-google-all-the-way/)

------
jmawson
I run a trade paper on corporate venturing and investments -
www.globalcorporateventuring.com . There is a wider continuum on which CVCs
stand versus financial VCs. This requires the entrepreneur to be as diligent
on checking track records, strategic aims, consistency and delivery and focus
as for any other potential investor. Some academics reckon CVCs buy on average
3-5% of their portfolio but some do more. It is also useful to look at how a
CVC (often companies look for two to limit signalling issues) might fit with
others in the syndicate and how all their aims can be resolved.

------
amlamari
Glad to see that this post offers a positive outlook on corporate VC rather
than highlight the media-driven skepticism. Startups should take consideration
for the strategic, long-haul value that larger corporations can provide by
being present in the early days.

------
nlwhittemore
For a slightly more antagonistic view, check out this post by Fred Wilson
about his...let's say disinclination? - towards the corporates.

Has any one had particularly positive or negative experiences?

~~~
jonnathanson
I have had both highly positive and mildly negative experiences. It all
depends on the corporation in question, its particular risk tolerance and
investment objectives, and its history of doing this sort of thing.

It's important to pause, for a beat, on the "objectives" part. A VC firm and a
strategic investor often have very different goals, and those goals will drive
their behaviors and expectations. The VC wants explosive growth, followed by a
big exit. The corporation wants to build option value for its working capital.
That's a subtle distinction, but it makes a world of difference in many
situations.

Here are some pros and cons I've dealt with:

Pro:

\- Corporate investors are more likely to keep giving you chances, ironically
enough. This is partially for cynical reasons, but also for political-
functional reasons. No corporate exec wants egg on his/her face, so there's a
big incentive to keep funding your project until it can no longer be
justified. (The period of ostensible justification can be quite long.) An
angel or VC, by contrast, has plenty of other horses in the race if yours
breaks a leg. This leads to a paradox in risk tolerance. The VC expects, and
even encourages you to pivot and to "find your business model" \-- but it
won't have years' worth of patience. A corporation is less likely to
understand the Lean approach, and will be less forgiving of true startup
methodology. But it will be very hesitant to pull the plug on you.
Corporations are very susceptible to the appeal of sunk costs, whether real or
fallacious. (Important note: I would strongly discourage you from actively
seeking to game this fact, i.e., by attempting to make a career peddling
bullshit up the corporate ladder. That's doable, but it's a very dishonest and
often counterproductive strategy that will eventually catch up to you.)

\- In theory, you can call upon internal and external corporate partners as
immediate revenue sources, partners, or clients.

\- Risk of abject failure is heavily cushioned. If you strike out completely,
you're probably going to be forgiven, to a degree.

\- Corporations have no incentive to fund your competitors.

\- Corporations who invest for the long haul will do everything in their power
to go to bat for you. Never discount the value that phone calls or intros from
a Fortune 500 C-level exec can do for your business, for instance.

Con:

\- Much more limited upside in many circumstances, because the corporate
investor has no real incentive to sell or bring in outside investment,
particularly if things are going well. Remember: they're buying a call option
when they invest in you; they're not actually trying to build you toward an
exit.

\- Depending on the corporation, and the size of its stake, its presence in
your cap table can discourage outside investment from institutional funds and
angels. (Though not always, and as with every rule, there are plenty of
exceptions and outright reversals.)

\- Emphasis on, and pressure toward reporting, vanity metrics. Depends on the
corporation, but generally speaking, corporations like their vanity metrics.
More accurately: your corporate's internal, political sponsor likes selling
his peers and superiors on vanity metrics.

\- Depending on its level of control, the corporation might exert pressure to
move in specific directions that benefit its internal business portfolio.
Those directions may not align with your objectives. (A variant of the "agency
problem".)

\- Corporate executive ranks tend to shuffle like musical chairs, and when
they do, project priorities shift for largely political reasons. Your startup
might be one of those "projects."

