CVCs Offer Tangible Value to Startups

Corporate Venturing has institutionalized the concept of being more than capital.? If you are unfamiliar with CVCs or how they work, please see the recent podcast by McKinsey on how this investing mechanism boosts innovation and brings value to all stakeholders.? ?

This past week GCV published an article by Maija Palmer highlighting how CVCs are increasingly distinguishing themselves with new capabilities in-house.? The article is worth a read.? While CVC funding slowed last year and energy was often redirected to shoring up existing portfolios, CVCs have proven resilient.? Plus, the launch of 65 new CVC units last year was good news.? That means more startup innovation is flowing into more corporates.? Lastly, the business development role grew in significance at CVCs, which showcases the flow of potential business deals.? Let’s explore this further….

An estimated 40% of CVC teams now have a business development function, which is up from single digits a decade ago.? Liz Arrington at the GCV Institute points to the shift of focus in corporate venturing to “landing the value”. This business development role is a game changer.? In my experience at IBM, we recognized firsthand that corporations have a compelling value proposition to offer founders when they capitalize on leveraging the infrastructure of the corporation.? We called it our Capital Plus model and instituted a Venture Champion program and Portfolio Development role (a.k.a the business development role) to bring the reach of IBM into the startup community.? We did this by having dedicated business unit colleagues join our venture team as liaisons in their units.? It operationalized a way to engage with startups, and operational excellence delivers better outcomes.

The concept came from two perspectives—first, my learnings from our first Watson Fund in 2014.? Second, we studied how other corporations were getting value from running effective investment arms. If done right, CVC provides i) headlights from the early-stage community, ii) better access to the innovator ecosystem for sourcing, and iii) helps inform strategy.? We were thematic investors covering five areas, but we were not experts in every business.? Venture Champions joined us as subject matter experts – and it benefited all stakeholders, both pre-and post-investment.

As noted by the VC Stack, platform teams serve as a differentiator for CVCs and VCs, attracting founders in a competitive market and supporting founders – hence protecting enterprise value - in hard times.? Several recent studies validate this approach, as VCs with platform-focused team members tend to outperform peers in IRR and return multiples. The role pays for itself.

I am encouraged to see these business development roles take off.? This translates into more avenues to bring startup innovation into the enterprise.? At a time when mega-trends like Sustainability and GenAI will have a profound impact, corporates will need to be at the nexus of innovation and investment.

Companies in every industry are engaging startups.? Here is a representative list of CVCs investing in and learning from the startup ecosystem via venture funds focused on climate.???

Corporations can apply multiple structures to achieve results and are positioned across a spectrum spanning those emphasizing direct investment returns to those emphasizing indirect value through strategic alignment.? Regardless, it’s a capital-efficient model at the core.

My closing comments for any corporation contemplating a CVC unit is to be humble, open-minded, and long-term focused.? Startups have much to teach corporates.? Remember that the more committed the platform specialist, the better the outcomes.? No two CVCs are alike, and I found the "crawl-walk-run" approach works best.? Start small, then scale up when the operating plan is in place.

Relevant Resources

• GCV published an article
• VC Stack
• podcast by McKinsey

Written by Angie Grimm, FIF Collective.