Building technology companies, Forum

Corporate Ventures – Partnering With VC Firms

Anik Bose, BGV General Partner shares his perspective on the challenges faced by corporate development teams within large firms and the potential for partnering with VC firms. Corporate Venture groups have deployed more capital to US based startups in 2014 than any year since 2000 – $5.4Bn across 775 deals (Source: MoneyTree™ Report from PricewaterhouseCoopers LLP (PwC) and the National Venture Capital Association (NVCA)). Corporate Venture groups often invest to keep pace with technology changes and disruptions. Their objectives may include:

  • Access technologies to grow existing businesses
  • Identify emerging technologies or business models that may threaten incumbent market position
  • Complement internal R&D (i.e. outsource R&D or hedge an internal R&D project)
  • Establish eco-system to drive product demand
The Venture Capital business has a high time constant – corporate VC Arms will need to stay in the market for long periods of time, irrespective of market fluctuations. While corporations with large balance sheets such as Google, Intel, Cisco, EMC, Comcast and SalesForce etc. have set up separate venture funds with dedicated teams of investment professionals, this is seldom an option for most corporations. Instead, these companies tend to rely on their corporate development teams to make venture investments. The challenge faced by these teams is that making investments is only one amongst several responsibilities – i.e. strategy, M&A, divestitures etc. This is further complicated by the fact that the skill set of corporate development teams is sometimes better suited for M&A than for making venture investments. In some cases, these corporations have invested as LP’s in venture funds to address some of these issues. But while these relationships may have provided financial returns, the strategic value yielded has been questionable. This is especially so because as LP’s these corporations buy into a “blind” pool of investments, and rarely can they influence the fund GP’s to make direct investments that meet their specific strategic objectives. BGV believes that Corporate Venture is an important part of the VC eco system and provides benefits to both entrepreneurs and traditional VC’s including:
  • For entrepreneurs, potential access to a customer base and channels, as well as brand credibility through association
  • For traditional VC’s, a complementary source of capital, and technology and market validation
With this in mind BGV has developed a unique corporate partnering program, one that recognizes the value added role of corporate venture and addresses the dilemmas faced by firms who cannot afford a venture fund with a dedicated team of investment professionals. BGV’s Corporate Affiliate program provides key elements of a successful corporate venture program including:
  • Strategic Alignment – Develop corporate partner investment themes and thesis based on the firm’s strategy
  • Deal flow – Source and screen deals in industries related to the specific company’s main business and those that fit their strategy
  • Due Diligence – Conduct comprehensive diligence prior to investment – Team, Technology/Product, Market etc
  • Co-invest – Structure deals with skin in the game looking for shared success
  • Portfolio Management – Provide board governance on strategic and operational issues
BGV’s approach has been designed based on the partners own experiences as CEO’s and senior executives in large technology companies and has been well received by leading technology companies such as Citrix, Brocade, Palo Alto Networks, Zebra and Aruba/HP. As company builders we have first hand experience that, by providing both an inside look at new technologies and a path to possible ownership of new ideas, corporate venturing can allow a company to respond quickly to market and technology transformations. To achieve these goals successfully, partnering with a VC firm could be beneficial for corporations. BGV cultivates strategic partnerships with select corporate partners that are well aligned with its areas of investment focus – cybersecurity, cloud/virtualization, mobility and IoT.