Today’s large corporations are witnessing a daunting reality: 40% of them will face extinction in the next decade. With survival top-of-mind, large corporations are increasingly looking beyond their walls for technologies and products that can help them push the innovation envelope.
Over the past decade, there’s been an eruption of corporate venture capital (CVC) funds, with Intel Capital, Google Ventures, Salesforce Ventures, Comcast Ventures, and Qualcomm Ventures among the most notable. In 2017, 75 of the Fortune 100 were active in corporate venturing and 41 had dedicated CVC arms. A staggering 186 new CVC funds across the world made their first investment in 2017, representing a 66% growth rate over 2016 rates.
The emergence of CVCs has not escaped controversy. Union Square Ventures Managing Partner Fred Wilson famously shot fire at CVCs in 2016 with his harsh remarks, “Investing in companies makes no sense. Don’t waste your money being a minority investor in something you don’t control. You’re a corporation! You want the asset? Buy it.”
Yet, contrary to many critics’ views, CVC isn’t necessarily doomed for failure. It’s become a significant component of the funding ecosystem and is responsible for funding numerous esteemed companies. CVCs participate in nearly one-third of all U.S. venture deals. Strong relationships—with parent companies, portfolio companies, VC peers, and others—are a prerequisite for CVC success.
1. Sourcing deals
CVCs cannot afford to act as lone wolves. They must look far and wide for promising ventures that align with their investment theses. Rather than painstakingly conducting market and other analyses, it’s much more time and resource efficient for CVCs to forge strong relationships with VC peers so as to maximize their reach. Using Affinity, CVCs can gain full purview into their network and leverage VC peers to gain critical introductions to the next most promising companies and ensure they are not missing out on lucrative ventures.
2. Maximizing portfolio company success
Strong relationships between CVCs and portfolio companies are mission-critical to success. The Kauffman Foundation explains, “The nature of the relationship…[between CVCs and] portfolio firms determines how the investor benefits from investments.” One of the biggest “value adds” that CVCs offer their portfolio companies is access to their far-reaching network. Research has shown that portfolio companies that can access investor knowledge grow more rapidly.
Oftentimes CVCs do not have insight into the full scope of their own network, which includes the expansive network of their parent company. This impairs their ability to leverage their network to the benefit of their portfolio companies. CVCs need to map out their entire network and understand how they can leverage their network most effectiveness to add value to their portfolio companies. With Affinity’s Alliances, portfolio companies can even proactively tap into this expansive network and determine how best to gain access to new potential hires, strategic business partners, distribution channels, supply chain partners, customers, and other valuable connections.
3. Lighting up potential exit paths
In the world of CVCs, the only constant is change. Changes in leadership, strategy, economic conditions, and business objectives can all markedly impact investment theses. Rita Waite, a senior analyst at Juniper Networks’ venture capital arm, explains that the constant state of change gives rise to “a spotty track record for follow up investment as strategy and leadership change during the lifetime of a startup."
In order to ensure they prime their portfolio companies for long-term growth and successful exits, CVCs must forge strong relationships with other VCs, including other CVCs, as well as institutional investors. Lisa Lambers, former Intel Capital executive and current member of the National Venture Capital Association (NVCA), explains, “You can't really expect a company to scale if you can't get sequential funding...That means you really do have to have relationships with other venture capital firms—corporate or private—so that founders can be sure that the money spigot isn't turned off just as growth is getting underway.”
The rampant emergence of CVCs marks an exciting new reality. From operating support to establishing increased credibility in the eyes of the public to access to lucrative distribution channels, CVCs can put portfolio companies on a powerful path to success. The key is relationship intelligence. As Michael Yang, a Managing Director at Comcast Ventures, explains, “There is no shortage of capital for the best startups. The smartest entrepreneurs want the most value-added investors on their cap table. Every VC’s dollar is green, so what differentiates a VC is how they can be most helpful to a portfolio company post-investment.” By understanding the full scope and reach of their networks and strategically tapping into their networks, CVCs can differentiate themselves from the funding masses and provide exceptional value to their portfolio companies.
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