Corporate Venture Capital (CVC) has undergone an exciting revolution in recent months and years. Large corporate machines are trying to keep pace with innovation. No company or industry is safe from disruption. The Davids are eager to overthrow the Goliaths. And many Goliaths have reached the conclusion that collaboration and partnership is more effective than head-on competition.
Companies have long struggled to successfully dabble in venture capital. Between 1980 and 2006, the median lifecycle of the average corporate venture capital firm was a mere four years. There’s an art and science entailed in successful corporate venture capital. Here are five tips from some of the most successful corporate venture capital firms.
The most successful corporate venture capital arms have a relentless focus on a particular area of expertise. They have deep expertise and a nuanced understanding of a specific domain that allows them to assert a competitive advantage. This not only helps them identify the most promising investments, but it also enables them to add value to startups in the form of deep industry expertise.
Consider Qualcomm Ventures, the third most active corporate venture capital arm in 2017. Qualcomm focuses primarily on deep tech, including AI, robotics, and mixed reality. Varun Jain, leader of Qualcomm’s early-stage investment efforts, explains, “We have a very nuanced understanding of deep-tech businesses given that we’ve made 140+ such investments all over the world.”Independence
While corporate venture capital arms must be strongly connected to the parent company, the most successful ones operate as a separate and independent entity. This allows them to be nimble and operate with a high tolerance for risk. Google Ventures, for example, is based on Google’s main campus, but in separate buildings. The strategy has paid dividends. Google Ventures was the most active CVC investor in 2017.
Many entrepreneurs are hesitant to work with corporate venture capital arms due to the industry’s reputation for being slow and constrained by significant bureaucratic red tape. While corporate venture capital arms must do their homework, and be diligent, they can’t afford to dawdle.
Qualcomm Ventures, for example, tends to make a formal investment decision in the span of two to three weeks. Jain explains, “We have a very quick investment approval process in general and particularly so for early-stage deals. Qualcomm also hustles to win important deals. “We don’t wait for validation from a financial investor to make our decision. If we feel strongly about an opportunity and think we can add value, we’ll step up and price the round.”
In order to scale deal flow, corporate venture capital arms need to be firmly implanted into their relevant startup ecosystem. They need to be effective networkers and develop strong relationships with key partners. Consider, for example, JetBlue Ventures (JTV). While JetBlue Airways is based in New York, JTV is strategically based in the Silicon Valley region, considered by many to be the epicenter of tech innovation.
In order to scale its network, JTV has partnered with various accelerators and incubators, including 500Startups, Plug and Play Tech Center, and Rocketpace. It also forges strong relationships with industry-relevant organizations, including Travel Tech Con, a community dedicated to emerging travel tech and Future Travel Experience, an organization dedicated to optimizing the end-to-end passenger experience. In February 2018, Bonny Simi, President of JTV, explained, “These relationships and more have helped our team gain exposure to over 2,000 start-ups since our inception in February 2016, and we have invested in an ever-growing number (16 as of today).”Value Creation
One of the most compelling reasons for taking CVC money is the opportunity to get deep industry expertise. Value-added resources allow CVCs to provide a compelling value proposition to startups. In industries such as travel tech that is poorly understood by the traditional venture capital industry, these value-added resources can catapult startups to success. Simi explains, “We have experience working very closely with the regulators on many matters including aircraft certification, safety reviews, air and hotel operations, revenue and loyalty systems and more, so we can help our startups understand and navigate the travel and hospitality industries”.
Like other successful CVCs, JTV also strives to provide value to startups by facilitating introductions to partners and customers across the industry. Intel Capital, for example, regularly facilitates meetings between startups and suppliers, partners and customers in every major market in the world. In 2017, Intel Capital hosted 56 Intel Capital Technology Days to help portfolio companies engage with customer executives from Global 2000 companies.
While there's no one-size-fits-all strategy, there are certain qualities that position corporate venture capital arms to thrive. Corporate venture capital arms must be seen as a complement to traditional venture capital, not a competitor force. By paying heed to the five tips described here, corporate venture capital arms can capitalize on the lucrative startup ecosystem and realize impressive returns.