A Startup’s primer for Corporate Venture Capital

- Shivani Kulkarni , Investments at Prime Venture Partners

Corporates are actively investing in the Indian startup story. In 2022 alone, despite the slowdown, corporates invested ~$3.4B across 350+ deals and are actively setting up vehicles like early stage funds (CVCs), accelerators to strengthen their participation in the ecosystem.

Often, as a founder you may wonder about the value such partnerships bring to you and your startup. Through this blog, I attempt to answer a few questions and debunk a few myths regarding this nuanced investor.

1. Why are they investing?

Corporates have various ways of investing in a start-up:

• Early-stage investments for financial upside
• Strategic investments to enable a business line?
• M&A to acquire capabilities, new business lines or consolidation?
• Acquihire - mostly for tech / product talent.?

For a founder, it is very important to align the intent early in the conversation. A simple hack can be to ask questions a few basic questions around their:?

• long-term strategy and how your sector / tech plays a part in it
• view on competitors
• investment thesis

If the sector/ tech features prominently in their strategy and they have spent time evaluating competitors, chances are that they are considering an M&A (now or option value for M&A later) or just a straight strategic investment. If there is no direct relevance to their core business but they have a strong investment thesis, they are most likely looking for financial upside.?

No matter what the intent, it is important for a founder to have that clarity early on and also set expectations accordingly.

2. What’s in it for me / my startup?

There are several advantages of having a corporate on your cap table. They can help with distribution, access to client base, tech, insights on the market and unlock several other opportunities which can take your business to new heights.

Regardless,?here are a few areas that you need to evaluate:

• Signalling to the ecosystem? – will you have the desired options (VCs / Corporates) available for your next funding round, and
• Impact on business – will you gain or lose any customers or partners?

Balancing the opportunity and the cost will help you arrive at stake and rights (exclusivity, ROFR/ROFO, Exit) to be discussed with the Corporate. A well-designed partnership is where both parties benefit and hence “Balance is the key”.

3. How do I navigate?

Large corporations have thousands of people working for them. For a strategic investment / M&A, there are 3-4 teams involved, each with a clearly defined role.?

• Business Owner - whose P&L will be affected by the investment and is the principal sponsor
• CorpDev sponsor - who has the investment budget and will drive the transaction
• Support functions (including legal, finance) - gate-keepers who protect the company’s interest

For a founder to effectively manage the investment process and navigate the system, developing a relationship with all the key stakeholders is crucial. These relationships not only help during the investment, but also come in handy at a later stage (day-to-day portfolio operations, integration, etc). My advice would be to get on a call, or better yet, meet each team in person and understand their role, responsibility and point of view.

Having a corporate as an investment partner has numerous benefits. However, it is essential to understand the dynamics and nuances of the investor, while having clarity about what you are expecting from each other to get the maximum benefit from the relationship.?

If you are a founder trying for a corporate fund raise or are curious to understand the dynamics of corporate investments, do reach out to me.?

(Views expressed are personal. I currently work as an investment professional at Prime Venture Partners. In my previous avatar, I have worked with the Corporate Development team at Flipkart and facilitated several startup investments and initiatives.)