Corporate VC-backed funding soared to an all-time high in 2020 (over $73 Billion, up 24% and representing almost 50% of all VC dollars invested) despite the pandemic. This was top of mind during our recent virtual Corporate Venture Capital (CVC) discussion where we hosted top innovation leaders from across the SoCal region as part of our invitation-only Corporate Innovation Discussion series. Discussion attendees represented corporate venture funds that had just launched, were decades old and some that were newly exploring potential opportunities in this critical area of innovation leadership.
Corporate venture arms allow companies to get exposure to new and disruptive technologies, partners, and business models as well as serve as a source for market knowledge and help establish relationships with innovative entrepreneurs. Paul Holland, the Managing Director and VC-in-Residence at Mach49, helped lead the discussion and brought deep experience and insight on the benefits and challenges of CVC.
One of Mach49’s newer clients discussed their company’s CVC strategy emphasizes access to innovation and new technologies. Given they are early in this evolution (having only made a few investments so far), they are initially making smaller investments based on a “walk before you run” approach. As a global leader in industrial products, they are able to offer portfolio companies a robust customer network to market their new products.
To offer a more storied point of view, the managing partner of a well-established CVC in the healthcare industry discussed the venture arm’s evolution over the last 25+ years. With over $500m in assets under management across a number of funds, they can make larger ($5m-$7m) investments; and with a larger workforce to draw from, they can still be very active in the portfolio companies including serving on their boards.
During the participant-led Q&A with the two profiled CVC’s and amongst themselves, key insights included:
- “Value the learning” and focus on strategic alignment; though this doesn’t mean a specific eye to potential M&A
- When it comes to establishing funding levels, the general approach was to start small and then increment-up over time.
- Perform post-mortem analysis on investments to discover weak spots and refine the model
- Principals in CVC should be earning carried interest in order to attract and retain top talent
- CVCs can be more attractive (to startups) than a traditional VC because of the value added such as customer base, branding, team, corporate reputation, etc
It was a compelling conversation from start to finish and we could have kept it going even longer. It was clear that an effective CVC strategy can add significant value to an innovation-driven enterprise. Therefore, we are looking forward to hosting our third and final discussion (for 2021) in this series which will focus on open innovation and strategic partnering. If you are a senior SoCal corporate innovation leader and wish to be considered to receive an invitation please send a request including your background and role to Katie Cameron.
Recommended reading: Dreamers to the Disruptors
and watching: “Something Ventured” documentary