Corporate Venturing: How To Find The Right Corporate VC For Your Startup
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The “Access All” Initiative was conceptualised by Wayra UK after the success of its “Back Black Founders” event. These initiatives are a conscious drive to get more of an understanding of what is needed to support entrepreneurs from specifically ethnic minority backgrounds and how we can help supercharge their businesses. Wayra UK has joined forces with a number of partners, alongside Force Over Mass & Floww, in the hope of reaching more founders than ever.
However, getting face-to-face is only half the battle. Once you’re in the room, how can you give yourself the best chance of securing that investment?
To answer that question, we spoke to some of Europe’s top Corporate VCs to discuss what they look for in a startup, how to identify the best fit for your startup, and top tips for pitching to a CVC.
Why should you consider a Corporate VC?
Corporate Venture Capital is a catch-all term for what is, in reality, a hugely diverse group of teams with differing objectives, specialties and approaches. A corporate VC is simply the venture capital arm of a large corporation, created with the dual purposes of generating both a financial and strategic return. What this means is that while a traditional VC will invest in you because they believe your startup could become extremely valuable, a corporate VC will invest because they believe your startup could become extremely valuable to their parent company.
“Typically you go for a CVC because they could become a potential customer or acquirer of your company in the future,” said Ladi Greenstreet, Head of European Investments at Accenture Ventures. Their dual role as an investor and customer can make them especially valuable as a source of investment, sales and customer insight.
Greenstreet added that in the past corporate VC acquired a bad reputation among startups for restricting their ability to do business with the corporate’s rivals. However, more enlightened attitudes have prevailed, and modern CVCs are collaborative partners.
“Where CVC has evolved is, as an industry we started to understand that a rising tide lifts all ships and having that exclusivity is not beneficial either for the startup or for the corporate,” he said. What corporates typically do now is branch their VC arm further outside the corporate structure and give the startup more space, contributing expertise when needed and gaining insight from their investment.
Parin Shah, Investment Associate at Lego Ventures, said startups could often benefit from the CVC’s understanding of its corporate’s end customer, networks and scale. Lego Ventures, for example, invests in startups focused on the future of learning, creativity and play.
“We always position ourselves as being able to offer an compelling strategic value to our portfolio companies based on our understanding of the demographic, global scale and our deep focus on educational, playful experiences,” he said.
Pre-pitch: not all CVCs are created equal
A complicating factor when considering pitching to a corporate investor is that their mandates can be narrower than those of traditional VCs. Before making an approach, it is crucial to take the time to do your research and make sure your startup is a good potential fit.
The easiest way to do this, says Greenstreet, is by asking yourself two questions: “who is my ultimate customer?” and “who is the ultimate acquirer of my company?” The corporates most closely aligned to the answer to those two questions are a good place to start.
After that, most corporate VCs clearly outline their investment thesis on their website, giving you a clear idea of the kind of startups they are interested in funding and the sectors they invest in.
“It’s always good to look at the existing portfolio,” said Shah. “Where have they been active, where has capital been deployed. That mandate may have changed, but it gives you a good idea.”
If possible, Shah also recommends speaking to people who are associated with the CVC, such as reaching out to a founder from one of their portfolio companies via LinkedIn.
“They will give you an idea of what they’re interested in, what they’re like as a partner, how active they are and maybe even a quick view on whether it’s worthwhile sending something through,” he said.
This early research is crucial, as it will inform the approach you take when you come to pitch, said Bruno Moraes, Country Manager for Wayra UK.
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“Some corporate VCs are much more interested in the fit between the startup and the corporate, as is, for example, our case at Wayra” he said. “At these CVCs, it’s very important to show how your startup solves a problem that the corporate has.”
However, he added that some corporate VCs are much closer to traditional VCs in terms of their incentives and approach, so it is difficult to have a one-size-fits-all approach, but it’s important for the entrepreneur to do some research and try to understand what motivates that particular VC.”
It’s in everyone’s interest that all parties understand where the others are coming from, and Greenstreet said he sets expectations with startups at the outset, explaining what stakeholders are involved, the relationship with the corporate entity, what the CVC’s expectations are and how they are measured. That said, he emphasised there is no substitute for doing the research yourself.
“If you do your due diligence, you’ll be much better able to say how they might be able to help you scale,” he said.
Time to pitch: How to approach
As you might expect, CVCs receive a lot of approaches from startups looking to raise funding. However, being mindful of the way their teams work can improve your chances of hearing back.
“The way most CVC firms are structured is that the associates do a lot of the groundwork and monitor the top of the funnel, so I think reaching out to junior people is a good way of at least getting your foot in the door” said Shah. “With most founder-friendly VCs, you’ll at least get some form of feedback.”
If possible, it is helpful to get an introduction to one of the VCs via a third party, said Moraes. He stressed that a cold approach over email could work, but the volume of messages CVCs receive means it is harder to give tailored feedback.
When it comes time to pitch, Bruno Moraes said the best startups take the time to zero in on the problem they were trying to solve and could speak about it with confidence, but had also taken the time to understand the queries and concerns investors might have,
“Perhaps even more important than the pitch itself is to try and think about every possible question that may arise and have a good answer for those questions,” he said. “It’s about precision on the problem, and confidence.”
Greenstreet echoed this, noting the best pitches were the ones that understood the “hero story” of the CVC and their customers.
“What are their objectives?” he asked. “And how are you the secret weapon to help achieve your customers’ or your partner’s objectives?”
Sama Carlos Samame, Business Development Manager at AWS Connections, concurred, noting: “The best startups don’t wait for their corporate sponsor to build a business case, they do it for them; they want to facilitate the process and make it as simple as possible
Getting inside an investors’ head to understand their perspective can take a lot of work, and it can be tempting to try and demonstrate how much work you have done by deluging a potential investor with data and slides. This is the wrong approach, said Shah, who added the ideal pitch deck was usually only 10–20 slides long.
“Any individual has a limited bandwidth and articulating the story in a very concise way is a great way of then getting a lot of interest from the other side,” he said. “I think very succinctly you can get to a view of why this startup is differentiated, why now is the right time to dive headfirst into this problem and how much money you really need to get there.”
Some startups commonly — and mistakenly — assume they already understand where the CVC is coming from, and don’t take the time to listen to their perspective when they finally meet. Besides this, Greenstreet said companies that had failed to research their market fully often claimed to have no competitors or an implausibly high total addressable market (TAM).
Typically, at the end of a meeting The CVC will outline how their process works and the next steps. They may well come back with a no, but Shah said founders should not treat all refusals equally.
“If it’s an unqualified no, don’t continually reply to that person,” he said. “But, if it’s a ‘no it’s not really for us, but we think it’s an interesting idea’, then I think it’s probably fine to try and use that VC and the time you’ve spent there to try and further the case and maybe get an investment from someone else.”
Aftermath: Communication is key
So, say you’ve followed our advice and landed an investment from a top corporate VC. What now?
Shah, Moraes and Greenstreet all agreed that the best companies in their portfolios made communication a priority. The best CVCs want to know what’s going on with your business, and to help in any way they can.
“The best startups in our portfolio are those that are open and transparent with the issues they’re facing and how we can support them,” Moraes said. “Think of your corporate VC as an ally”
Don’t forget why you approached them in the first place. Your CVC likely has a deep network in your field. Remember to use it, and to consult them when facing big decisions.
“Really ask the CVC for the benefit of their network,” said Shah. “Who do they know who will help you hire the next head of product? Who do they know who will help you hire the next head of growth? Do you need help with a financial model?”
Corporate VCs can offer startups much more than funding, but in order to make the most of it founders must take the time to understand who they are partnering with and help them to reach their goals. If they do, the investment can pay off in more ways than one.