What is a corporate venture fund
A venture fund, the only limited partner of which is a large corporation, and investments are made in the interests of this company, is called corporate. In English, the abbreviation CVC is used to designate it.
Over the past few years, the number of such funds has increased from a few players in the market to a thousand. At the beginning of 2017, there were 965 corporate venture funds worldwide. According to conference speaker and Stanford business school professor Ilya Strebulaev, who conducted his own research, a third of all investments in the world are in CVCs, and the total amount of their transactions is already more than $1.5 billion.
Which well-known companies have their own venture funds
Among the most significant recent developments, Chinese Internet company Baidu committed $3 billion in October 2016 to a special fund called Baidu Capital, which invests in high-growth technology companies. In doing so, Baidu is seeking to close the gap with rivals Alibaba and Tencent, which have made strides in corporate investment in recent years. In January this year, Samsung launched the $150 million Samsung NEXT fund to support early-stage technology startups.
BMW has also jumped into the trend by creating a $530 million fund for its BMW subsidiary iVentures.
At the same time, Microsoft began making direct investments again through its Microsoft Ventures division in May 2016, and also formed a dedicated fund for artificial intelligence.
Why do companies need their own venture funds
The interests of corporations are fundamentally different from the motives of private equity funds. “For most corporate funds, making money is a secondary goal,” says Stas Kirman, investor and co-organizer of the SVOD conference. “That’s why an entrepreneur has the opportunity to get more appreciation while losing a smaller stake in their project.” According to a 2015 survey of large corporate funds, the reasons for companies to start investing were as follows (from most important to least):
Possession of information about market conditions;
Obtaining financial profit;
Understanding the functioning of the most technologically advanced companies and venture capitalists;
Obtaining licensed technologies.
Criteria for project evaluation
In the course of his research, Ilya Strebulaev, a professor at Stanford Business School, asked investors in corporate investment funds about the parameters that they first of all pay attention to when making a decision to finance a particular startup. Investors from private venture funds are primarily guided by how talented and balanced the team is leading the startup, and to what extent the product developed by it meets the needs of the market. In turn, analysts working in funds at large corporations, as the main criterion in making a financing decision, look at how the project is consistent with the concept of the entire company and what potential benefits the company can receive from it. Benefits for startups
Among the benefits that corporate venture funds can provide to startups are:
Professional assessment and testing of the product for viability; accelerating the technological development of the product;
Assistance with entering the market, including the world market, which would be impossible for a company at an early stage;
Potential exit, including the purchase by a corporation of a startup in which money was previously invested, or the licensing of its products;
Access to clients, including the investing company itself as a potential client;
Access to experts in this field and the opportunity to invite employees of the investing company to join your team;
Opportunity to participate in incubators or accelerator programs run by many CVCs (Intel Accelerator, Google Launchpad Accelerator, Qualcomm Robotics Accelerator and others). Should startups get involved with corporate venture funds?
Ilya Strebulaev gave some advice to projects that want to apply to corporate funds for financing. Here are the main points of his speech:
Investors of leading corporate funds are the best experts in their field. They are the only ones who will be able to give your project a professional assessment and development advice that is ideally suited to the current state of the market.
Corporate funds can provide valuable client bases, supply chains and operating mechanisms. But for a startup, it is important to carefully choose a fund, as it must ideally match the requirements of the project in order to achieve the maximum result from cooperation.
When choosing a fund, you should first of all consider the CVC of the largest companies. It is global corporations that will be able to provide
give you the tools you need for faster and more efficient expansion into the global market.
It is in your interest to keep corporate representatives out of your startup's leadership positions in order to avoid a conflict of interest that will inevitably arise if, for example, you decide to enter into an agreement with a competitor company of your CVC.
Corporate venture funds have a number of features that distinguish them from conventional venture funds. When working with them, a special approach is required, requiring careful calculations and thoughtful decisions. However, it's worth it as the CVC market becomes more competitive and therefore the prospects for startups looking for funding are greatly improved. What is SVOD
Silicon Valley Open Doors is an international business conference in Silicon Valley that brings together young entrepreneurs, founders of successful startups, investors and representatives of technology corporations on one platform. Over the 13-year history of the event, every second startup selected by the SVOD jury has received investments. Together, SVOD members raised $750 million in investments from Draper Associates, Founders Fund, Salesforce, and Y Combinator.
In May of this year, the 13th SVOD took place. It was attended by 37 selected startups from around the world (from seed stage to Series B). About 300 Silicon Valley investors came to listen and appreciate them.