Venture capital is often referred to as an apprenticeship business because so much important learning comes from day-to-day experiences. Yet, as an article published by the Business Development Bank of Canada (BDC) explains, you can shortcut the learning process by learning from experts: “Your learning curve can be shorter—and your results better—if you learn from pros who’ve already mastered key … ... read more
Three Myths About Corporate Venture Capital
The corporate venture capital (CVC) industry has been growing at breakneck speeds. Over the past few years, CVC deals have grown significantly as a proportion of global VC deal count.
But, as it’s gained traction, CVC has not been without criticism. Largely due to differing incentive systems compared to traditional VC firms, CVC has taken a lot of heat. Not all of this heat, however, has merit. On the contrary, CVC has several unique advantages that can propel startups and entrepreneurs to new heights.
The first step in understanding the value of CVCs is to distinguish fact and fiction. Here are three common myths about CVCs that need to be debunked:
Myth #1: CVCs limit a startup’s long-term options
Many entrepreneurs falsely believe that taking CVC money will limit their long-term options. This isn’t necessarily true. On the flip side, CVCs are uniquely positioned to help entrepreneurs lay the groundwork to become prospering long-term ventures. Ken Elefant, former managing director at Intel Capital, explains,
“Sure, traditional VC firms have good contacts. I can say this from experience, having spent more than a decade in such firms. But corporate venture funds, the investment arms of well-known brands from Alphabet and Microsoft to Novartis and Bertelsmann, typically know hundreds of senior leaders at Global 2000 companies. With one phone call, they can put you in front of the right people with the specific need for your technology.”
Intel Capital has an especially impressive track record of brokering arrangements between its portfolio companies and Global 2000 firms. In 2016, Intel brokered nearly 5,000 engagements between its portfolio companies and Global 2000 firms. Due to CVC’s close connections to big-name corporate entities, they’re in a unique position to broker relationships. With relationship intelligence, it’s easy to tap into the most lucrative connections and position portfolio companies to capitalize on relationships.
Myth #2: Only large established companies have CVCs
Many entrepreneurs have historically shied away from entertaining the idea of CVC because they believe options are limited. Sure, the CVC industry is dominated by the likes of Google, Intel, Qualcomm, and Salesforce.
But smaller, private, and less-established companies have eagerly joined the CVC playing field. Twitter, Slack, and Workday have all launched venture funds in the past few years. All of them have a uniquely different focus. The Slack Fund, for example, invests in startups building tools that integrate with its platform. Workday Ventures, on the other hand, focuses on emerging technologies, including AI, machine learning, blockchain, augmented reality, and virtual reality.
Myth #3: CVCs and traditional VCs don’t mix
Many believe that CVCs and traditional VCs have such different incentives that they couldn’t possible both benefit from co-investment. Sure, CVCs differ from traditional VCs in that they are focused on strategic benefits, and not just financial returns. But this doesn’t mean that they can’t seek to benefit from co-investing with traditional VCs. In many cases, VC firms bring expertise in due diligence and valuation to the table, while the CVC brings access to new markets, technological expertise, and connections to large established brands.
Consider the Slack Fund. It was launched in partnership with six of Slack’s investors, including Accel, Andreessen-Horowitz, and Index Ventures. When CVCs and traditional VCs partner, it can often be a win-win.
The CVC industry has experienced a remarkable transformation in recent years. There’s a reason for its rapid growth. It’s a powerful tool. By debunking some common myths, we can get one step further in understanding the full potential of corporate venture capital and how it can fuel startups and entrepreneurs to new levels.
“Within weeks of moving to Affinity, we were able to easily discover and manage the 1,000s of entrepreneur and venture community relationships already latent within our team." —Eric Emmons, Managing Director, MassMutual Ventures