How is your industry meant to work?
Corporate Venture Capital is about investing in startups on behalf of an established company like Google, Intel or Salesforce. The theory being that these corporations have a unique insight on a specific market to identify promising companies, which they can then use their unique resources (like relationships, sales channels, intellectual property and general know-how) to help succeed. The happy benefit is the corporation stays close to new innovations, can learn about new markets, and is close to potential future acquisitions.
How does your industry actually work?
We send cash to startups in return for ownership in their company. That’s it. Usually we do have unique insight into a specific market so the companies we make investments in generate good returns for our fund, and the corporation. However, getting people at a large corporation to actually chip in and help startups succeed is next to impossible. They are not incentivised to help, and because they make no extra money the Corporate VC and the startup will not get access to any resources that matter.
What’s the most surprising thing people don’t know about your industry?
The surprising thing is that despite what I just said, Corporate Venture Capital is still a great source of capital for startups. Why? Because startups can get funding on good terms, from a friendly team with little motivation to put pressure on the founding and management team (because cash and profits are plentiful at a corporate vs. a traditional fund which needs to show returns). Plus, the startup can benefit from being associated with an established brand.
If a founder takes money from a Corporate VC, they can get a really good deal.
What do you know that few others know about your industry?
These vehicles are a luxury item. They are nice to have, but not essential. If it came down to a crunch point and there were any competing priorities, the executives at a corporation would close the Corporate VC down in a heartbeat. This happens more frequently than people think.
What’s the last thing you would want outsiders to know about your industry?
The strategic benefits work in theory, but rarely in practice. It’s very rare that these vehicles aren’t just holding financial investments with the hope of generating a return. For this reason, it’s surprising that most Corporate VC’s don’t just pivot into being financial vehicles because they can generate a high return on capital.
I wouldn’t want industry outsiders to know this as it takes some of the sheen off the Corporate VC and might hurt our brand in the market. As I said, it shouldn’t because founders can still get a really good deal, but if this were more understood it might hurt our access to deals.
What would shock most people about your industry if they knew about it?
Again, how little value we add as investors. But this is also a wider Venture Capital phenomenon. Most investors are passive and simply don’t add value. Not all, but most. I wish founders would realize that they should just accept capital from the investor who provides the best terms in respect to economics and control (and I think they are starting to cotton on).
The other thing is how big Corporate VC is. I think this will shock people. There are so many Corporate VC’s now and last year they invested an all-time high over US$100 billion which is around a third of all venture dollars invested. It’s big and growing pretty fast.
What’s the dirty little secret in your industry?
This is tough to admit. The truth is that if there was a good enough case, we would set up a competing product or service to one of our portfolio companies and take our lessons from the investment and being on the board to help set it up for success. I’m being dramatic, it’s usually not as direct as this. It’s not people from the Corporate VC who are proposing it, and the corporation would have become competitive with or without an investment. Luckily for founders, most of the time the opportunity simply isn’t big enough to make it worthwhile for a large corporation. And if it does happen, it’s better to have a relationship in place to position as an acquisition, get access to information or partnership opportunities.
What tips would you have for people so that they get the best outcome when dealing with your industry?
At the end of the day, the people who work for a Corporate VC fund are not investing their own money and are unlikely to have carry (a share in the profits) the way a traditional VC will. This means they are more likely to be flexible on terms and economics. Don’t let them negotiate hard with you, as you hold all the cards. There is also often little harm in pushing for the terms you want.
What do you wish your stakeholders would do to make your life easier?
Honestly, for us it’s pretty chill. We don’t lead rounds so we participate in negotiations with founders and other investors more passively, just accepting the terms. For our execs, our fund isn’t something they are measured on or fired for so they were pretty chill. If I had to name one thing it would probably be the removal of some of the barriers, a less restrictive mandate and internal teams who were more responsive to our requests. Typical corporate stuff.
Is this a good industry to work in?
Yes! It’s a fantastic industry to work in. You get to work in venture capital and invest from a well-funded balance sheet. Plus earn a high salary that is protected by being part of a large corporation. The only downside is you don’t typically share in the upside. It’s more rare that the people who run Corporate VC’s share in the profits.
What would the haters say about this industry?
The main haters of Corporate VC’s are the traditional VC’s as we are competitive with them. You actually find very few founders with negative things to say about Corporate VC. The traditional VC’s will tell you that Corporate VC’s don’t add-value (neither do they) and might be competitive with you in the long run (maybe, but so might another company in their portfolio). It’s just coming from competition for deal flow and it makes total sense when you consider their incentives.
What is the outlook for your industry?
It has been clear sailing for the past decade. Times have been good, money has been cheap, the economy has been humming along and overall there have been few bumps in the road for large corporations. In addition, venture capital as an asset class has been performing well and valuation multiples are at all time highs. It’s been relatively easy to get good investment performance. This won’t last forever. Next time there is an economic downturn, the Corporate VC fund will be one of the first expenses to be cut. They are closed down all the time, and there'll be a massive spike in closures one day.
Do you have any advice for people who want to work in this industry?
It’s an interesting career path. The next step in venture capital after working at a Corporate VC is unclear as traditional VC’s typically don’t hire from Corporate VC’s (with the exception of the top tier like GV). So if you think this is your path into a traditional VC, make sure you give it some extra thought and have a clear plan on the narrative you’ll form to help you make that next step in VC. The main path is probably back into the corporate on the track for a bigger role like Head of Corporate Development or a Chief Strategy Officer.
What’s the funniest or most interesting story you have about your industry?
The funniest ongoing joke is probably the lack of understanding a lot of corporate executives have about venture capital, investing and capital allocation. They often find themselves in these roles because they are good politicians, not capable professionals who are dedicated to learning their craft and developing new skills. It’s okay, that’s the way of the world and something to understand and plan for. It was especially funny that we had one member of our investment committee who confidently referred to our investments and mandate as “Private Equity”, which I personally see as a completely separate field (where you typically buy controlling stakes in companies, fund with debt and operate the asset - i.e. NOT venture capital).
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